The United States Congress is considering a bill that would make it easier for many Americans to take out loans and still be able to make ends meet. Nearly 4 in 10 Americans don’t have enough in savings to cover unexpected costs. In an emergency, taking a loan is the only way to pay those bills. Predatory lenders, like those providing payday loans, have filled this gap, often in poor neighborhoods and communities of color. But payday loan interest rates average more than 300 percent and charge large penalties when they aren’t repaid on time.
Borrowers struggling to pay off these loans have told Human Rights Watch they sometimes forego food or delay paying rent and utilities so they can afford their loan payments. Those who can’t pay them off may take out another loan to repay the first. About 80 percent of payday loans are rolled over or renewed, each time with additional fees, leaving some borrowers trapped in a growing cycle of debt.
But the proposed Veterans and Consumers Fair Credit Act could offer borrowers some relief.
In 2015, Congress passed a law protecting active-duty service members from many forms of predatory lending by capping their interest rates at 36 percent. This ensures military personnel can avoid high fees or interest rates and meet basic needs. Several US states have also implemented interest rate caps to prevent predatory lending, with 16 states and the District of Columbia enforcing caps even under 36 percent while still enabling people to access credit elsewhere.
The Veterans and Consumers Fair Credit Act would extend the military interest rate caps to all American consumers, ensuring veterans, who were not previously included, and non-service members can also receive the protections provided by a rate cap. Americans could take a loan to cover an emergency, or even everyday expenses, without worrying as much about fees and interest rates that would entangle them in perpetual debt.
Having access to fair credit and avoiding usurious interest rates is vital for many Americans to meet their most basic needs. The government should put regulations in place to ensure people don’t have to choose between paying back loans and putting food on their table. Congress should pass the Veterans and Consumers Fair Credit Act.