Congress is considering passing a bill that will cap interest rates on consumer loans at 36 percent to prevent lenders from taking advantage of people who rely on these kinds of loans to meet basic needs or to cover unexpected expenses, like car repairs or vital medical procedures, many of whom are minorities and low-income people.
One of the most predatory consumer loans is the payday loan, a short-term loan with high annual interest averaging over 400 percent. Individuals on a limited income take out payday loans and often find that they can't pay back the loan because of the high interest. Often they fall into the debt trap of payday loans by taking out another loan because it is the only way to pay back the first loan, accruing heavy fines in the process.
Payday loan businesses tend to be located in predominantly African-American or Latino neighborhoods. Fifty-five percent of payday loans are taken out by African Americans and Latinos, who together pay over $240 million a year in fees.
A recent Center for Responsible Lending survey found that nearly three in four Americans support a federal cap on consumer loans at 36 percent.
Visit 400 Faces of Payday Lending, Center for Responsible Lending's website devoted to exposing the effects of payday lending on Americans, for more information.