Lenders can and do charge interest rates of over 600% on certain types of small loans, a fact some lawmakers have been fighting to change with legislation to put a ceiling on APRs.
But those bills are stuck in committee. Committees where, as it turns out, nearly half of lawmakers have collectively taken $2.4 million from payday and installment-loan lenders over the years, according to a new analysis.
The Senate Banking Committee and House Financial Services Committee are both inactive on capping payday loans, even though Senate Democrats reintroduced legislation to expand a 36% interest rate cap nationwide in July via the Veterans and Consumers Fair Credit Act. Parallel legislation was introduced in the House in November.
What could explain this lack of hustle by lawmakers who could rein in payday lending?
Watchdog organization Accountable.US found that 36 of these committees’ 78 members have taken a total of $2,379,720 in career donations from payday lenders as categorized by OpenSecrets. About 14 of them have specifically opposed a national interest rate cap, and 22 others have supported regulation that could allow online lenders to evade existing state interest rate restrictions, according to Accountable.
As many as 12 million U.S. adults take out payday loans each year. Yet roughly 80% of borrowers report that the payday loan left them in a worse position, according to a poll from DebtHammer.org. Typically, those taking out these loans are more financially vulnerable—those without a college degree earning less than $40,000 a year.
In states where these loans are available, consumers can start borrowing with simply an ID and bank account, no collateral needed. Yet experts say the short turnaround time to repay these loans can make them expensive and very difficult to pay off. The average payday loan is $375, yet racks up $520 in fees.
“When millions of Americans are allowed to fall into the debt trap needlessly, the entire economy suffers, not just vulnerable borrowers,” Jeremy Funk, spokesperson for Accountable, tells Fortune. “The choice Congress faces between protecting consumers or the profits of an industry that charges up to 400% APR should not be a difficult one. Even for lawmakers who’ve taken money from wealthy predatory lenders, is it really worth the price our communities are paying?”
The donations that Accountable tracked were the totals taken over the course of the lawmaker’s career, and many predate the current legislation. Additionally, Accountable did not look at contributions from major banks that have recently begun to offer small-dollar loans or from groups that support rolling back payday lending. So arguably, lawmakers could have taken from both opponents and supporters of a federal rate cap.
There are many reasons why legislation is never voted out of committee. And only a slim margin of bills reach the Senate or House floor. Last Congress, only 4% of bills got a vote, according to GovTrack. So far in this Congress, only 2% of bills introduced have received a vote.
There has also been considerable back-and-forth on whether capping interest rates will actually protect consumers. Research published last year, for example, indicated that enacting rules that block borrowers from taking out back-to-back loans and providing adequate repayment time frames may be more successful.
With federal legislation stalled, some states including Hawaii, Illinois, and Nebraska have put their own restrictions in place. About 18 states and Washington, D.C., currently impose at least a 36% rate cap on payday-loan interest rates and fees, according to the Center for Responsible Lending.
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