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Veterans & Consumer Fair Credit Act: PayDay Loans

Veterans & Consumer Fair Credit Act

 

With average interest rates of over 300% and sometimes exceeding 500%, payday lenders have been the target of State and Federal legislatures for some time.  Senator Jeff Merkely of Oregon has introduced bipartisan bill S.2833, the Veterans and Consumer Fair Credit Act, to address what are considered unfair consumer practices.  The bill, if passed, will serve to amend the Truth in Lending Act to extend the consumer credit protections currently provided to members of the Armed Forces and their dependents to all consumers.

 

The Truth in Lending Act legislates the use of consumer credit requiring full disclosure of terms and standardizing how costs associated with borrowing are calculated.  Senator Merkley is proposing that interest rates be capped at 36% – the same rate of The Military Lending Act.  That federal law passed in 2006, covers loans on active duty military members. The Veterans and Consumer Fair Credit Act would then afford that same maximum rate for everyone else.  

 

Predatory Lending?

 

Considered “predatory,” payday lenders typically offer loans without requiring collateral.  They are, however, payable in two weeks time (hence, the payday loan moniker.) The loan repayment includes a fee upon that has an astronomically higher interest rate compared to other loan types.

 

What is the Solution?

 

There are arguments on both sides.  Proponents want to protect consumers from usurious loan practices.  Many borrowers end up in a never-ending cycle of paying back a loan only to take out another.  Even worse, not paying back in time and experiencing extremely inflated interest rates. These borrowers are more often than not minorities in under served neighborhoods.

 

Those against the measure argue that payday loans are the only option for some people.  Those with a low credit score or only need a small amount, say $100 – $500, take advantage of payday loans.  Banks are not an option for them but payday loans fill the need.  If payday lenders have their fees legislated, how will they stay in business and continue to serve this community?  Are consumers not adult enough to make their own decisions?

 

A 2018 survey by Texas Appleseed finds that payday loan borrowers use the loans for everyday expenses.  58% used the loans to pay utilities, 42% for rent and 38% for groceries and gas. If Congress passes the Veterans and Consumer Fair Credit Act, payday loans may be a thing of the past.

PayDay Loans by Most Common Need:

Pay Utilities
58%
Rental Payment
42%
Groceries & Gas
38%

Additional Resources on PayDay Loans