Statements on Introduced Bus and Joint Resolutions

Floor Speech

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Mr. DURBIN. Mr. President, as our economy continues to recover, families across America are still facing financial hardships. Our priority to help working families must persevere, and we must protect them from future financial harm.

Some have compared today's predatory lending practices to the subprime lending that caused the financial crisis in 2008. We need to free our financial system from these abuses and prevent consumers from never-ending debt traps.

Today I am introducing the Protecting Consumers from Unreasonable Credit Rates Act to protect consumers from aggressive predatory lending practices. The bill caps annualized interest rates on consumer credit at 36 percent.

Consumers spend over $30 billion every year on predatory payday loans, high-cost overdraft loans, and other forms of credit. Imagine if a portion of that $300 billion ten-year cost of credit could be redirected towards buying American goods and services.

In an era that has called for trillions of taxpayer dollars to bail out banks and jumpstart economic demand, this proposal costs the taxpayers nothing. In fact, in the case of payday lending, it could potentially save billions of dollars in fees and interest paid by the 12 million American taxpayers who use these products annually.

The Protecting Consumers from Unreasonable Credit Rates Act would establish a new federal annualized Fee and Interest Rate calculation--the FAIR--and institute a 36 percent cap for all types of consumer credit.

In 2006, Congress enacted a Federal 36 percent annualized usury cap for certain credit products marketed to military servicemembers and their families, which curbed payday, car title, and other forms of credit around military bases. My bill would provide the same protections for all Americans.

Although I hope to gain widespread support for this bill from responsible lenders, I understand that some of the financial service firms in this country will be uneasy with a broad bill establishing a high interest rate cap.

There are those that will claim it is not possible to create a profitable, small-dollar, short-term loan with APR capped at 36 percent and consumer protections. However, there are financial institutions that currently offer access to quick credit through products with consumer protections and interest less than 36 percent. I hope with the introduction of this bill we can open an honest conversation about consumer credit rates and how it impacts American families.

I would first start by asking what services these firms provide that can justify charging customers over 36 percent in annual interest. How do lenders in my home state of Illinois justify charging annual rates over 400 percent? In my opinion, there is no justification.

Consider 66 year-old Rosa Mobley, who lives on Social Security and a small pension.

The Chicago Tribune reports that Ms. Mobley took out a car title loan--a type of payday loan in which the borrowers put up their cars as collateral--for $1,000. Ms. Mobley was charged 300 percent interest.

She wound up paying more than $4,000 over 28 months and at the time of the report was struggling just to get by.

This bill would require that all fees and finance changes be included in the new usury rate calculation and would require all lending to conform to the limit, thereby eliminating the many loopholes that have allowed these predatory practices to flourish.

It would not preempt stronger state laws, it would allow states' attorneys general to help enforce this new rate cap, and it would provide for strong civil penalties to deter lender violations.

The Protecting Consumers from Unreasonable Credit Rates Act would eliminate predatory lenders, as well as would help borrowers make smarter choices.

The Truth in Lending Act was enacted over 40 years ago to help consumers compare the costs of borrowing when buying a home, a car, or other items by establishing a standard Annual Percentage Rate that all lenders should advertise.

My first mentor in politics, the late Senator Paul Douglas from my home state of Illinois, said all the way back in 1963 that too often lenders:

compound the camouflaging of credit by loading on all sorts of extraneous fees, such as exorbitant fees for credit life insurance, excessive fees for credit investigation, and all sorts of loan processing fees which rightfully should be included in the percentage rate statement so that any percentage rate quoted is meaningless and deceptive.

That was before anyone had ever heard of ``subprime lending.''

Unfortunately, as the use of credit has exploded and as the complexity of the credit products offered by lenders has become mind-boggling, Congress and the Federal Reserve have taken several actions since the passage of Truth in Lending to weaken the APR as a tool for comparison shopping. Today, many fees can be excluded from the rate that is given to borrowers. The APR no longer gives consumers the convenient and accurate information it once did.

This bill would give consumers a way to accurately compare credit options, by requiring that the new FAIR calculation be disclosed both for open-end credit plans such as credit cards and for closed-end credit such as mortgages and payday loans.

On a related note, I commend my colleague, Senator Jeff Merkley of Oregon, who introduced the SAFE Lending Act of 2012 earlier this week. I am proud to be an original cosponsor of the bill. The bill would require better compliance among lenders within existing laws and provide new enforcement measures for offshore lenders or those who claim the right to tribal sovereign immunity. These provisions, along with further consumer protections offered within his bill, offer much-needed lending reforms.

Various Federal and State loopholes allow unscrupulous lenders to charge struggling consumers 400 percent annual interest for payday loans on average, 300 percent annual interest for car title loans, up to 3500 percent annual interest for bank overdraft loans, and triple-digit rates for online installment loans.

As Congress continues to address economic challenges facing our nation, I urge my colleagues to also consider simple solutions to help working families make ends meet. We can help give more money to American consumers today without borrowing money that must be repaid tomorrow. Let's start by eliminating some of the worst abuses in lending by establishing a reasonable fee and interest rate cap.

I urge my colleagues to support the Protecting Consumers from Unreasonable Credit Rates Act.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

There being no objection, the text of the bill was ordered to be printed in the RECORD,

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