Reps. Garcia and Grothman Introduce Legislation to Establish a 36 Percent Rate Cap on Consumer Loans
Last week, U.S. Reps. Jesus “Chuy” Garcia (D-Ill.) and Glenn Grothman (R-Wisc.) introduced legislation that would extend consumer loan restrictions included in the Military Lending Act to all consumers across the nation. In practice, this would bar many consumer lenders from charging fees and interest that exceed 36 percent annually. Garcia and Grothman were joined by Senators Jeff Merkley (D-Ore.), Jack Reed (D-R.I.), Sherrod Brown (D-Ohio), and Chris Van Hollen (D-Md.), who have announced that they will introduce a companion bill in the Senate.
The rate cap under the Military Lending Act was imposed in 2006 and bars active-duty servicemembers or their dependents from taking out loans that exceed the 36% APR cap. It does not currently extend to veterans or gold star families.
According to the most recent Federal Reserve Board’s Report on the Economic Well-Being of U.S. Households, nearly 40 percent of American consumers would not be able to cover an unexpected expense of $400 out of pocket, instead paying for the expense by borrowing from friends or family, selling something, or not covering it at all. Conversely, 61 percent said they would pay with cash, savings, or a credit card paid off at the next statement.
Industry opponents say that the loans being targeted by the legislation are often necessary for consumers with non-prime credit, and that the proposed rate caps would limit access to credit for these consumers.