S. 500 Bill Translation
We wanted to make it as easy as possible to understand exactly how the law
would change if bill S. 500 is enacted, so we've explained each section
of the bill below:
SECTION 1. "SHORT" TITLE.
The name of the bill is 'Protecting Consumers from Unreasonable Credit Rates Act of 2009'.
SEC. 2. FINDINGS.
Congress believes:
- People (specifically the government) have been trying to prohibit extremely high interest rates since early in America's history.
- 15 states and Washington, DC have imposed laws that "protect" borrowers from high-cost payday loans and other forms of credit. 34 states and Washington, DC have limited the annual interest rate to 36% or lower for AT LEAST 1 type of consumer credit option.
- In 2006, the federal government enacted a law that prevented businesses providing certain types of credit (including payday, car title, and tax refund lending) from charging military personnel and their families more than 36% interest annually. This resulted in these businesses disappearing from around military bases.
- Even with these various laws, "high-cost" lending still exists.
- Consumers currently pay approximately $17,500,000,000 for OVERDRAFT loans (fees), as much as $8,600,000,000 for storefront and online payday loans, and nearly $900,000,000 for tax refund loans annually.
- On average, consumers pay 400% APR for payday loans, 300% APR for car title loans, 3,500% APR for BANK OVERDRAFT LOANS, 50 - 500% APR for tax refund loans, and more than 50% APR for CREDIT CARD FEES.
- Congress thinks it's necessary to create a new law that will cap the annual interest rate for ALL types of lending at 36% APR (including fees).
- Someone (the bill doesn't explain who or how this should be done) should "encourage" small loans that have no fees, can be repaid in installments, and have affordable repayment schedules.
SEC. 3. NATIONAL MAXIMUM INTEREST RATE.
If the bill passes, the following regulations will be added to an act called the
Truth in Lending Act (15 U.S.C. 1601 et seq.):
SEC. 141. MAXIMUM RATES OF INTEREST.
- No one can charge consumers more than a 36% annual rate on loans, INCLUDING ALL INTEREST AND FEES.
- Fees and interest rates are defined as follows:
- In general, the interest rate and fees include ALL INTEREST AND FEES charged by the lender (such as late fees, annual fees, membership fees, charges for related products/services, etc.).
- The following exceptions are allowed:
- For loans that last at least 90 days and
have at least 3 installment payments:
- If the loan is for AT LEAST $300, an application fee of up to $120 can be charged.
- A late fee of $20 per late payment or $20 per month can be charged.
- A fee of up to $15 can be charged for a bounced check.
- The government may adjust the amounts listed above for inflation.
- For loans that last at least 90 days and
have at least 3 installment payments:
- This section explains how the annual interest rate will be calculated. Essentially, it entails taking all interest and fees paid on a loan and making sure the total doesn't average more than 36% of the amount of the loan annually.
- A "creditor" is anyone who regularly gives, renews, or continues credit.
- No creditor can be exempted from these laws for any reason.
- The government may make new regulations regarding how businesses must notify consumers about interest rates and fees.
- If a state has laws that are more strict than those in this bill (lower maximum interest rate, etc.), the state's stricter laws will be used instead.
- If a lender charges someone more than allowed by this law, they must return the overage to the consumer.
- Anyone who violates this law will be put in prison for 1 year and forced to pay $50,000 or more for each violation.
- A state's attorney general can enforce this law; the statute of limitations is 3 years.
SEC. 4. DISCLOSURE OF FEE AND INTEREST RATE FOR OPEN END CREDIT PLANS.
In section 127(b)(6) of the current Truth in Lending Act, the phrase 'the total finance charge expressed' and
the rest of that paragraph will be deleted and replaced by the phrase
'the fee and interest rate, displayed as 'FAIR', established under section 141.'
