The current push by payday lenders to try to circumvent state laws is just one reason Congress must act on a new proposal that would cap interest rates at 36%.
Modern payday lenders – offering the high interest credit that was called today’s loan shark and started in the 1990s – are finding ways around state laws that prohibit or restrict interest rates. exorbitant, sometimes more than 500%.
Payday lender schemes take many forms, but one scheme in particular deserves attention because it is spreading.
This is called renting from a bank or renting from a charter. Federal banking laws, which accept deposits, only subject them to the usury law of the state in which the bank is based. But the bank can ignore the interest rate limit that another state can impose.
This means that he can “export” the interest rate limit from his home state and apply it to any loan made to a consumer located in another state. This is why many credit cards are issued by banks located in states, such as Delaware and Nevada, that do not have usury limits.
In the model of leasing from a bank, the non-bank payday lender partners with a bank. He then claims that the bank is actually granting the payday loan and that the (non-bank) lender is simply acting as an agent of the bank. For this reason, the payday lender claims that the loan is not subject to any state usury law which may prohibit payday loans.
Currently, some 90 million Americans live in states – like Georgia, New York, Arkansas, Colorado, and West Virginia – that restrict payday lending, typically with an interest rate cap of 36. % or less. But even those consumers can fall prey to payday lenders who use tricks, such as renting a bank, to evade the usury laws of their states.
For example, West Virginia and Colorado have gone to great lengths to enforce their state’s laws against rental banks and other payday lenders. But their work is a constant struggle, as the the courts of yesteryear pointed out outside.
Regardless of what happens in pending litigation, like that of Colorado, which disputes bank rental payday loans, because there is no limit to human inventiveness, some payday lenders may create new technological devices under the guise of “innovation” to stay ahead of anything that courts or state legislatures might ban. As a Kentucky court in the 1920s put it, “the greed of the lenders” has “resulted in great variety of devices to evade usury laws. “
This is where Congress comes in. In 2006, Congress passed the Military Lending Act, which capped the interest rate on payday loans to military personnel at 36%. This law too extends to rent a bank lenders.
A bipartisan duo in the House, Reps Jesús G. “Chuy” García, D-Ill., And Glenn Grothman, R-Wis., Recently presented HR 5050 – the Fair Credit Act for Veterans and Consumers – which would create a national interest rate cap of 36%. It will be presented to the committee for consideration later this month. What is good for women and men in military service should be good for everyone.
As legislators start debating the bank rental scheme This month, they should act quickly to pass the Fair Credit Act for Veterans and Consumers.
While the state’s consumer protection laws are good, they are subject to the constant play of lenders using bank leasing and other programs. Federal law would put an end to this, offering financial protection covering all Americans.
This question should not be a right-to-left question. Instead, it’s a question of good versus bad.
Congress is wrong to allow stingy payday lenders to prey on hard-working Americans. Just as the military loan act protects people in uniform from the scourge of predatory payday loans, it should protect everyone nationwide as well.