The following editorial appeared in The (Mankato, Minnesota) Free Press, a CNHI newspaper. It does not necessarily reflect the opinion of The Tribune-Democrat.
Loan sharks have long been around, loaning money to desperate people at exorbitant interest rates. Those mob-related sharks, operating outside the law, used the threat of violence if not paid back.
Today, the payday lender system operates within the law, but the obscene interest rates remain. Now, federal regulators in the Trump administration want to block states from having control over how high interest rates can be.
The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency want rule changes that would let high-cost lenders “rent-a-bank,” allowing them to get around state interest caps.
While the payday lenders are covered by state rules, national and federally insured state banks are not because they are covered by federal banking laws. The rule changes would allow those high-interest lenders to “partner” with national and state banks and then charge any interest rates they want – thus the “rent-a-bank” terminology.
In the past, those lenders charged as much as 100% interest, meaning people who were already in financial peril were put into a faster downward spiral with no way out.
That’s why states began limiting how much lenders could charge, with the caps generally at a still onerous 36%.
And in 2006, Congress partially addressed the problem with the Military Lending Act, which places a 36% cap on the interest rate for payday-type loans offered to service members, who were often preyed on.
Now, a bill in the House would extend the 36% interest rate cap to all American consumers.
American Banker, a trade publication for the banking industry, supports the law and opposes federal rule changes that would allow pay-day lenders to partner with legitimate banks.
According to The Hill newspaper, strong majorities of Democratic, Republican and independent registered voters support a federal cap on interest rates.
Seventy percent of registered voters said they approved of limiting interest rates on consumer loans to 36%, according to a poll conducted by Morning Consult. Seventy-two percent of Democrats, 70% of Republicans and 67% of independents expressed support for the rate cap.
The bill deserves to be passed and should be approved by the Senate. If there is a bill that should get bipartisan support, it’s this one. Those in financial distress should have some basic protection against predatory lenders.