Neil's Notebook Protecting you from predatory interest rates
June 4, 2009
Neil is cosponsoring legislation to stop predatory interest rates, charged by some banks and credit card issuers, on the public. Scroll down to see quick summary of the bill, a fact sheet, and the bill's text (as of 6/4/09).
SUMMARY
Usury laws set a maximum interest rate that lenders can charge borrowers. Currently all 50 states have usury laws, but these laws are preempted by the National Bank Act’s section 85, as the U.S. Supreme Court ruled in Marquette National Bank of Minneapolis v. First Omaha Service Corporation, 439 U.S. 299 (1974). This has allowed banks and other credit card issuers to charge interest rates upwards of 35 percent. To stop these predatory rates on the public, I have cosponsored H.R 1640, the Interest Rate Reduction Act of 2009.
H.R. 1640 extends the same 15 percent interest rate cap that exists on loans at credit unions to all lenders. The bill also imposes a reasonable cap on lending fees which have risen dramatically over the past decade. The Federal Reserve would have the authority to allow lenders to charge a higher interest rate, if it determines that the 15 percent cap would threaten the safety and soundness of individual lenders as evidenced by adverse trends in liquidity, capital, earnings, and growth; or if money market interest rates have risen over the preceding six-month period. If a lender charges a higher interest rate than is allowed under this Act, consumers have a right to recover the entire amount of interest they paid within two years.
_ _ _ _ _ _ _ _ _
FACTS ABOUT" THE INTEREST RATE REDUCTION ACT"
Background As a result of an amendment to the Federal Credit Union Act that was signed into law in 1980, interest rates on loans at credit unions, including credit cards, were capped at 15 percent.
The National Credit Union Administration (NCUA) has the authority to raise this cap after consultation with the appropriate committees of the Congress, the Department of Treasury, and other Federal financial regulatory agencies, if it determines that money market interest rates have risen over the preceding six-month period or that prevailing interest rate levels threaten the safety and soundness of individual lenders as evidenced by adverse trends in liquidity, capital, earnings, and growth. NCUA has used this authority to increase the interest rate cap on loans at credit unions to 18 percent.
This reasonable interest rate cap has protected consumers at credit unions from being charged usurious interest rates; it has not harmed the safety and soundness of these institutions; and it has not negatively impacted the access to credit of credit union members.
Credit union members with good credit scores are still able to receive credit cards and loans that they need at reasonable interest rates. And, to date, no credit union has received any taxpayer assistance from the Troubled Asset Relief Program. The time has come to extend this reasonable interest rate cap to all lenders.
What does the The Interest Rate Reduction Act do? The Interest Rate Reduction Act simply extends the same 15 percent interest rate cap that exists on loans at credit unions to all lenders. The bill also imposes a reasonable cap on lending fees which have risen dramatically over the past decade. The Federal Reserve would have the authority to allow lenders to charge a higher interest rate, if it determines that the 15 percent cap would threaten the safety and soundness of individual lenders as evidenced by adverse trends in liquidity, capital, earnings, and growth; or if money market interest rates have risen over the preceding six-month period.
If a lender charges a higher interest rate than is allowed for under this Act, consumers have a right to recover the entire amount of interest they paid within two years. This is the same exact right consumers have under the Federal Credit Union Act.
Why is the act needed? Financial institutions are now receiving the largest taxpayer-funded assistance from the federal government in our nation’s history. These banks should not be allowed to fleece the middle class of this country even more by jacking-up interest rates on credit cards and other consumer loans, especially at this moment in our nation’s history.
The lack of a national usury rate, has allowed banks to charge interest rates as high as 35 percent on credit cards. Payday lenders have been charging their customers interest rates as high as 800 percent. These unscrupulous interest rate increases must come to an end.
-------------
The following is the text of the bill asof 6/4/09:
111th CONGRESS
1st Session
H. R. 1640
To amend the Truth in Lending Act to protect consumers from usury, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
March 19, 2009
Mr. HINCHEY (for himself, Mr. COHEN, Mr. ELLISON, Ms. LEE of California, Mr. MCDERMOTT, Mr. GEORGE MILLER of California, and Ms. WOOLSEY) introduced the following bill; which was referred to the Committee on Financial Services
To amend the Truth in Lending Act to protect consumers from usury, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the Interest Rate Reduction Act'.
SEC. 2. NATIONAL CONSUMER CREDIT USURY RATE.
Section 107 of the Truth in Lending Act (15 U.S.C. 1606) is amended by adding at the end the following new subsection:
(f) National Consumer Credit Usury Rate -
(1) LIMITATION ESTABLISHED- Notwithstanding subsection (a) or any other provision of law, but except as provided in paragraph (2), the annual percentage rate applicable to any extension of credit may not exceed 15 percent on unpaid balances, inclusive of all finance charges. Any fees that are not considered finance charges under section 106(a) may not be used to evade the limitations of this paragraph, and the total sum of such fees may not exceed the total amount of finance charges assessed.
(2) EXCEPTIONS-
(A) BOARD AUTHORITY- The Board may establish, after consultation with the appropriate committees of Congress, the Secretary of the Treasury, and any other interested Federal financial institution regulatory agency, an annual percentage rate of interest ceiling exceeding the 15 percent annual rate under paragraph (1) for periods of not to exceed 18 months, upon a determination that--
(i) money market interest rates have risen over the preceding 6-month period; and
(ii) prevailing interest rate levels threaten the safety and soundness of individual lenders, as evidenced by adverse trends in liquidity, capital, earnings, and growth.
(B) TREATMENT OF CREDIT UNIONS- The limitation in paragraph (1) shall not apply with respect to any extension of credit by an insured credit union, as that term is defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
(3) PENALTIES FOR CHARGING HIGHER RATES-
(A) VIOLATION- The taking, receiving, reserving, or charging of an annual percentage rate or fee greater than that permitted by paragraph (1), when knowingly done, shall be deemed a violation of this title, and a forfeiture of the entire interest which the note, bill, or other evidence of the obligation carries with it, or which has been agreed to be paid thereon.
(B) REFUND OF INTEREST AMOUNTS- If an annual percentage rate or fee greater than that permitted under paragraph (1) has been paid, the person by whom it has been paid, or the legal representative thereof, may, by bringing an action not later than 2 years after the date on which the usurious collection was last made, recover back from the lender in an action in the nature of an action of debt, the entire amount of interest , finance charges, or fees paid.
(4) CIVIL LIABILITY- Any creditor who violates this subsection shall be subject to the provisions of section 130.'.
SEC. 3. CIVIL LIABILITY CONFORMING AMENDMENT.
Section 130(a) of the Truth in Lending Act (15 U.S.C. 1640(a)) is amended by inserting `section 107(f),' before `this chapter'.
