Devised as a short-term fix for cash-strapped borrowers, the virtually unregulated payday loan industry has become a key player in the U.S. economy, locking hundreds of thousands of Americans into a vicious cycle of high-interest debt. The industry's growth has been rapid, as well. In Illinois alone, payday loan storefronts outnumber McDonald's franchises. But as more Americans buckle under the weight of housing and health care costs, Sen. Dick Durbin says it's time to implement fair usury laws to protect consumers from predatory lenders:
U.S. Sen. Dick Durbin (D-Ill.) has taken aim at the high-interest-loan industry, introducing a bill proposing to cap rates charged for payday loans, car title loans and other forms of consumer credit at 36 percent annual interest.
Payday lenders typically charge anywhere from 200 percent annually to five times that figure depending on laws in states in which loans are obtained.
In effect, the bill would sweep aside rates higher than 36 percent annually in states where higher percentages now apply, but would not affect those with lower rates.
The bill will certainly face intense opposition from the financial services community, who fought tooth and nail for the bankruptcy bill "reforms" of 2005 and have consistently impeded legislation to tighten usury laws. But several years ago, Congress imposed a similar 36 percent annual interest cap on most loans for military personnel and their families. If it's good enough for soldiers, why not borrowers nationwide? Consumer advocates praised Durbin's move:
"It sets the bar," said Lynda De Laforgue, co-director of Citizen Action/Illinois. "It is really important because it says that this is the direction we are headed."
Image used under a Creative Commons license from Flickr user taberandrew.
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