Update: Since posting this article we have received comments from The Online Lenders Alliance (OLA) which are included in full at the end of the article.
SAVANNAH, Ga. (WSAV) – Supporters are calling it “Landmark” legislation designed to protect consumers ad veterans from predatory lending.
This week a small group of lawmakers which includes democrats and republicans said they are sponsoring a bill which would cap interest rates for payday, installment and title loans at 36 percent.
The lawmakers and groups like the Consumer Federation of America say the loans create toxic debt that traps many people for months or even years.
“And these interest rates become a vortex of debt,” said Senator Jeff Merkley who is a Democrat from Oregon.
Merkley says interest rates on some of the loans (which include recurring fees) can skyrocket to 100, 200 or even 300 percent.
Representative Glenn Grothman, a republican from Wisconsin told reporters “just on its face when you’re getting interest rates of over 300 percent that’s immoral.”
The proposed legislation would extend protections that currently exist for servicemembers through the Military Lending Act (MLA), which passed in 2006. The MLA caps interest rates servicemembers and their families at 36 percent.
But we’re told it does not necessarily protect veterans or surviving family members and it doesn’t extend to ordinary American consumers. The new bill would change that.
“We’ve already taken care of people currently in the military but you have to ask yourself if it’s immoral to give this type of loan to someone who’s in the military now – how is it okay to give the loan to anybody else,” said Representative Grothman.
Consumer Federation of America says that problems in repayment of payday loans and other high-cost debt rarely end with the next paycheck. The consumer group says these loans can “trap families in cycles of debt with high-interest rates that lead to increase loan balances.”
We’re also told that data from the Consumer Financial Protection Bureau shows that 75% of all payday loan fees come from victims who wind up taking out an average of 10 loans before they can finally pay off their debt and that others may see their cycle of debt last even longer.
Representative Grothman also says an increasing number of people are getting loans via the Internet and that “we have to step up on a federal level today because we are seeing more and more of this stuff being done online.”
Grothman and others admit that passage of this may be an uphill battle and that they are looking for additional sponsors. Grothman though believes that even talking about the proposed legislation sheds light on the type of loan industry.
“I think the more we talk about this bill the better because we shed the light of day on these industries and if they want to defend themselves, if they want to defend a 300 percent interest rate, well then go for it,” he told reporters. ” I think it will be helpful to the American public just to have this discussion.”
TMX Finance Family of Companies which owns Tiltlemax, Title Bucks and Insta loan is headquartered in Savannah. We asked them for a comment about the legislation and the term predatory lending in relation to their business. They told us via email that they don’t comment on legislative matters and are following local, state and federal laws. They also referred us to a trade (lobbying) association, Online Lenders Alliance.
OLA sent the following statement:
OLA and its members support good regulations based on facts and market realities. Licensed lenders in the U.S. comply with 19 Federal laws designed to prevent predatory lending practices that are fraudulent or deceptive. Lenders use new data sources and advanced analytics to evaluate the ability to repay loans and price loans according to risk. Over the last decade, the short term, balloon payment loan has largely been replaced by credit products providing multiple, amortizing payments over several months, installment loans, and lines of credit with disclosed rates and fees.
People need access to safe, regulated credit that can help them build a strong credit history or get through financial challenges, allowing them to move forward in their financial lives. The Garcia-Grothman legislation eliminates these options, voids their credit choices, and sets them back, forcing working people to bounce checks, miss payments, or go without essentials.