This week the United States Senate took an important step in trying to protect consumers from predatory payday lenders. Payday lenders typically charge rates between 200% of 300% for short terms loans, thus, rendering it almost impossible for their borrowers to repay the loans. These lenders have been lobbying hard for states such as Pennsylvania to lift the current caps on what these predators can charge.
If the U.S. Senate bill is successful, Payday loans will be capped at annual interest rates of 36%. In fact, all consumer credit transactions will be capped at this amount.
Payday loans, in particular, are insidious and devastating to the borrowers, who often live paycheck to paycheck. The interest on these loans is calculated on a weekly and, sometimes, daily basis. When confronted with public and political pressure, the payday lenders began charging, excessive "flat-rate" origination fees which were, simply, disguised, high interest rates.
If the bill becomes law, all all consumer credit transactions, including but not limited to mortgages, credit cards, car loans and payday loans would be capped to the 36% interest rate. But beware! I have no doubt that if the bill becomes law that lenders who have been preying on the public will find other creative ways to add hidden costs and fees to stick it to the consumer. This should be an interesting area for future consumer litigation in fighting these "fine" folks.