Ban On High-Cost Loans May Be Coming Some payday loans carry interest rates of 100% or more. The Military Lending Act limits rates on loans to service members. Now, a bipartisan bill aims to extend that protection to all Americans.

A Ban On High-Cost Loans May Be Coming

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


The U.S. military realized some years ago that a lot of service members were getting into serious trouble with loans. These had annual interest rates of 300% or higher. In 2006, President Bush signed a law that caps interest rates to protect active-duty troops. And now, some members of Congress want to expand those safeguards to all Americans. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: Chasity Wohlford lives in Houston, Texas. And a few years ago, money was very tight, and She needed to fly to Colorado for a family emergency. So a friend told her, just go to this payday lender. It's super easy. Wohlford says she thought she understood what the deal was. She borrowed $460, and she'd have to pay back 560. But she says the woman behind the counter...

CHASITY WOHLFORD: When she was going over the paperwork, the lady was speaking so fast and was like, OK, this and this and this. And this is what this is and dada, dada, dada, dada (ph).

ARNOLD: Wohlford says she was told she could make the payments over the next month instead of a week. But she didn't realize that that piled on more interest and fees. She fell further behind. And eventually, she says, she had to pay back about $1,200 - nearly three times what she borrowed. And digging out of the hole took eight months. Meanwhile...

WOHLFORD: My rent got behind. My lights got cut off once. My cable got turned off, and it went to a collection agency. And it was just a mess.

ARNOLD: She finally went to her employer to ask for money to get her electricity turned back on, which she still gets emotional about.

WOHLFORD: Imagine how embarrassing it was that I had to go to my job and tell my job, you know, hey, my lights are being turned off, to have to go to them and tell them that I can't take care of my home.

ARNOLD: Now, if Wohlford was active-duty military, it would be illegal to give her a high interest loan like this. And, in fact, she is a Navy veteran, but vets aren't covered by the Military Lending Act. It caps annual interest rates at 36%.

That happened after the Defense Department found that what they called predatory lending, quote, "undermines military readiness" and "harms the morale of troops and their families." Now lawmakers are introducing a bill that would extend this protection to veterans like Wohlford and everybody else, too.

GLENN GROTHMAN: We're going to expand it to the rest of the country.

ARNOLD: That's Congressman Glenn Grothman, a Republican from Wisconsin. He's joining four Democrats who'll be introducing House and Senate versions of the Veterans and Consumers Fair Credit Act.

GROTHMAN: It's hard to imagine who would want to take out a loan with an interest rate of 150 or 200% a year. There is no way that is in anybody's best interest at all. And taking advantage of people who are either in desperate straits or more likely just plain financially illiterate is immoral.

ARNOLD: But there is likely to be strong opposition to a nationwide interest rate cap. The American Bankers Association has opposed the idea in the past. And lenders who make these high interest rate loans are already speaking out in dramatic terms.

MARY JACKSON: Our estimate is that this will redline 150 million Americans from access to credit.

ARNOLD: Mary Jackson is the CEO of the Online Lenders Alliance. And she says people need these loans. And, sure, the interest rates are high, but she says that justifies the risk that lenders take.

JACKSON: Our customers are accessing our loans to solve an immediate problem that they have. So if their car breaks down, it means they can't get to work. So these loans are very, very helpful.

ARNOLD: And Jackson says a rate cap would take access to these loans away. Consumer advocates, though, say those fears are overblown. They say people in states that already have interest rate caps have access to credit and at better interest rates. They say a rate cap just provides an interest rate speed limit to keep people safe.

Chris Arnold, NPR News.


Copyright © 2019 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.