Protecting Consumers from Unreasonable Credit Rates Act of 2019

II 116TH CONGRESS 1ST SESSION S. 1230 To amend the Truth in Lending Act to establish a national usury rate for consumer credit transactions. IN THE SENATE OF THE UNITED STATES APRIL 29, 2019 Mr. DURBIN (for himself, Mr. MERKLEY, Mr. BLUMENTHAL, and Mr. WHITE- HOUSE) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Truth in Lending Act to establish a national usury rate for consumer credit transactions. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Protecting Consumers 4 from Unreasonable Credit Rates Act of 2019’’. 5 SEC. 2. FINDINGS. 6 Congress finds that— 7 (1) attempts have been made to prohibit usu- 8 rious interest rates in America since colonial times; 9 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 2 •S 1230 IS (2) at the Federal level, in 2006, Congress en- 1 acted a Federal 36-percent annualized usury cap for 2 servicemembers and their families for covered credit 3 products, as defined by the Department of Defense, 4 which curbed payday, car title, and tax refund lend- 5 ing around military bases; 6 (3) notwithstanding such attempts to curb 7 predatory lending, high-cost lending persists in all 8 50 States due to loopholes in State laws, safe harbor 9 laws for specific forms of credit, and the exportation 10 of unregulated interest rates permitted by preemp- 11 tion; 12 (4) due to the lack of a comprehensive Federal 13 usury cap, consumers annually pay approximately 14 $14,000,000,000 on high-cost overdraft loans, as 15 much as approximately $7,000,000,000 on store- 16 front and online payday loans, $3,800,000,000 on 17 car title loans, and additional amounts in unreported 18 revenues on high-cost online installment loans; 19 (5) cash-strapped consumers pay on average 20 approximately 400-percent annual interest for pay- 21 day loans, 300-percent annual interest for car title 22 loans, up to 17,000 percent or higher for bank over- 23 draft loans, and triple-digit rates for online install- 24 ment loans; 25 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 3 •S 1230 IS (6) a national maximum interest rate that in- 1 cludes all forms of fees and closes all loopholes is 2 necessary to eliminate such predatory lending; and 3 (7) alternatives to predatory lending that en- 4 courage small dollar loans with minimal or no fees, 5 installment payment schedules, and affordable re- 6 payment periods should be encouraged. 7 SEC. 3. NATIONAL MAXIMUM INTEREST RATE. 8 Chapter 2 of the Truth in Lending Act (15 U.S.C. 9 1631 et seq.) is amended by adding at the end the fol- 10 lowing: 11 ‘‘SEC. 140B. MAXIMUM RATES OF INTEREST. 12 ‘‘(a) IN GENERAL.—Notwithstanding any other pro- 13 vision of law, no creditor may make an extension of credit 14 to a consumer with respect to which the fee and interest 15 rate, as defined in subsection (b), exceeds 36 percent. 16 ‘‘(b) FEE AND INTEREST RATE DEFINED.— 17 ‘‘(1) IN GENERAL.—For purposes of this sec- 18 tion, the fee and interest rate includes all charges 19 payable, directly or indirectly, incident to, ancillary 20 to, or as a condition of the extension of credit, in- 21 cluding— 22 ‘‘(A) any payment compensating a creditor 23 or prospective creditor for— 24 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 4 •S 1230 IS ‘‘(i) an extension of credit or making 1 available a line of credit, such as fees con- 2 nected with credit extension or availability 3 such as numerical periodic rates, annual 4 fees, cash advance fees, and membership 5 fees; or 6 ‘‘(ii) any fees for default or breach by 7 a borrower of a condition upon which cred- 8 it was extended, such as late fees, creditor- 9 imposed not sufficient funds fees charged 10 when a borrower tenders payment on a 11 debt with a check drawn on insufficient 12 funds, overdraft fees, and over limit fees; 13 ‘‘(B) all fees which constitute a finance 14 charge, as defined by rules of the Bureau in ac- 15 cordance with this title; 16 ‘‘(C) credit insurance premiums, whether 17 optional or required; and 18 ‘‘(D) all charges and costs for ancillary 19 products sold in connection with or incidental to 20 the credit transaction. 21 ‘‘(2) TOLERANCES.— 22 ‘‘(A) IN GENERAL.—With respect to a 23 credit obligation that is payable in at least 3 24 fully amortizing installments over at least 90 25 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 5 •S 1230 IS days, the term ‘fee and interest rate’ does not 1 include— 2 ‘‘(i) application or participation fees 3 that in total do not exceed the greater of 4 $30 or, if there is a limit to the credit line, 5 5 percent of the credit limit, up to $120, 6 if— 7 ‘‘(I) such fees are excludable 8 from the finance charge pursuant to 9 section 106 and regulations issued 10 thereunder; 11 ‘‘(II) such fees cover all credit 12 extended or renewed by the creditor 13 for 12 months; and 14 ‘‘(III) the minimum amount of 15 credit extended or available on a cred- 16 it line is equal to $300 or more; 17 ‘‘(ii) a late fee charged as authorized 18 by State law and by the agreement that 19 does not exceed either $20 per late pay- 20 ment or $20 per month; or 21 ‘‘(iii) a creditor-imposed not sufficient 22 funds fee charged when a borrower tenders 23 payment on a debt with a check drawn on 24 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 6 •S 1230 IS insufficient funds that does not exceed 1 $15. 2 ‘‘(B) ADJUSTMENTS FOR INFLATION.— 3 The Bureau may adjust the amounts of the tol- 4 erances established under this paragraph for in- 5 flation over time, consistent with the primary 6 goals of protecting consumers and ensuring 7 that the 36-percent fee and interest rate limita- 8 tion is not circumvented. 9 ‘‘(c) CALCULATIONS.— 10 ‘‘(1) OPEN END CREDIT PLANS.—For an open 11 end credit plan— 12 ‘‘(A) the fee and interest rate shall be cal- 13 culated each month, based upon the sum of all 14 fees and finance charges described in subsection 15 (b) charged by the creditor during the pre- 16 ceding 1-year period, divided by the average 17 daily balance; and 18 ‘‘(B) if the credit account has been open 19 less than 1 year, the fee and interest rate shall 20 be calculated based upon the total of all fees 21 and finance charges described in subsection 22 (b)(1) charged by the creditor since the plan 23 was opened, divided by the average daily bal- 24 ance, and multiplied by the quotient of 12 di- 25 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 7 •S 1230 IS vided by the number of full months that the 1 credit plan has been in existence. 2 ‘‘(2) OTHER CREDIT PLANS.—For purposes of 3 this section, in calculating the fee and interest rate, 4 the Bureau shall require the method of calculation 5 of annual percentage rate specified in section 6 107(a)(1), except that the amount referred to in 7 that section 107(a)(1) as the ‘finance charge’ shall 8 include all fees, charges, and payments described in 9 subsection (b)(1) of this section. 10 ‘‘(3) ADJUSTMENTS AUTHORIZED.—The Bu- 11 reau may make adjustments to the calculations in 12 paragraphs (1) and (2), but the primary goals of 13 such adjustment shall be to protect consumers and 14 to ensure that the 36-percent fee and interest rate 15 limitation is not circumvented. 16 ‘‘(d) DEFINITION OF CREDITOR.—As used in this 17 section, the term ‘creditor’ has the same meaning as in 18 section 702(e) of the Equal Credit Opportunity Act (15 19 U.S.C. 1691a(e)). 20 ‘‘(e) NO EXEMPTIONS PERMITTED.—The exemption 21 authority of the Bureau under section 105 shall not apply 22 to the rates established under this section or the disclosure 23 requirements under section 127(b)(6). 24 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 8 •S 1230 IS ‘‘(f) DISCLOSURE OF FEE AND INTEREST RATE FOR 1 CREDIT OTHER THAN OPEN END CREDIT PLANS.—In 2 addition to the disclosure requirements under section 3 127(b)(6), the Bureau may prescribe regulations requiring 4 disclosure of the fee and interest rate established under 5 this section. 6 ‘‘(g) RELATION TO STATE LAW.—Nothing in this 7 section may be construed to preempt any provision of 8 State law that provides greater protection to consumers 9 than is provided in this section. 10 ‘‘(h) CIVIL LIABILITY AND ENFORCEMENT.—In addi- 11 tion to remedies available to the consumer under section 12 130(a), any payment compensating a creditor or prospec- 13 tive creditor, to the extent that such payment is a trans- 14 action made in violation of this section, shall be null and 15 void, and not enforceable by any party in any court or 16 alternative dispute resolution forum, and the creditor or 17 any subsequent holder of the obligation shall promptly re- 18 turn to the consumer any principal, interest, charges, and 19 fees, and any security interest associated with such trans- 20 action. Notwithstanding any statute of limitations or 21 repose, a violation of this section may be raised as a mat- 22 ter of defense by recoupment or setoff to an action to col- 23 lect such debt or repossess related security at any time. 24 VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS 9 •S 1230 IS ‘‘(i) VIOLATIONS.—Any person that violates this sec- 1 tion, or seeks to enforce an agreement made in violation 2 of this section, shall be subject to, for each such violation, 3 1 year in prison and a fine in an amount equal to the 4 greater of— 5 ‘‘(1) three times the amount of the total ac- 6 crued debt associated with the subject transaction; 7 or 8 ‘‘(2) $50,000. 9 ‘‘(j) STATE ATTORNEYS GENERAL.—An action to en- 10 force this section may be brought by the appropriate State 11 attorney general in any United States district court or any 12 other court of competent jurisdiction within 3 years from 13 the date of the violation, and such attorney general may 14 obtain injunctive relief.’’. 15 SEC. 4. DISCLOSURE OF FEE AND INTEREST RATE FOR 16 OPEN END CREDIT PLANS. 17 Section 127(b)(6) of the Truth in Lending Act (15 18 U.S.C. 1637(b)(6)) is amended by striking ‘‘the total fi- 19 nance charge expressed’’ and all that follows through the 20 end of the paragraph and inserting ‘‘the fee and interest 21 rate, displayed as ‘FAIR’, established under section 141.’’. 22 Æ VerDate Sep 11 2014 00:41 May 01, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6301 E:\BILLS\S1230.IS S1230 pamtmann on DSKBFK8HB2PROD with BILLS