Protecting Consumers from Unreasonable Credit Rates Act of 2025

Bill Number

S. 2781

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Finance and Financial Sector

Status

Introduced

Latest Action

2025-09-11: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs. (text: CR S6577)

Last Updated

2025-09-29T12:50:29Z

AI-Generated Summary

Purpose of the Legislation

The Protecting Consumers from Unreasonable Credit Rates Act of 2025 aims to protect consumers from predatory lending by establishing a nationwide cap on interest rates and fees for consumer credit. It addresses high-cost loans like payday loans, car title loans, and overdraft fees, which Congress finds exploit vulnerable borrowers through loopholes in existing laws.

Key Provisions

• National Usury Cap: Sets a maximum "fee and interest rate" of 36% per year for all consumer credit extensions, overriding any conflicting laws. This cap applies to creditors (entities that lend money or extend credit to consumers).
• Definition of Fee and Interest Rate: Includes all direct or indirect charges related to credit, such as:
• Fees for extending credit (e.g., annual fees, cash advance fees).
• Default fees (e.g., late fees, overdraft fees).
• Finance charges, credit insurance premiums, and costs for add-on products or services.
• Fees for wage-based advances (e.g., payday advances repaid automatically).
• Exceptions and Tolerances: Limited allowances for certain low-risk fees in longer-term loans (e.g., up to $30 or 5% of credit limit for application fees, $8 late fees, $15 insufficient funds fees), adjustable for inflation by the Consumer Financial Protection Bureau (CFPB, the federal agency overseeing consumer financial laws).
• Calculation Methods:
• For open-end credit (e.g., credit cards): Based on average daily balance and fees over the past year (or prorated for newer accounts).
• For closed-end credit (e.g., personal loans): Uses the annual percentage rate method under existing law, but expanded to include all covered fees.
• The CFPB can adjust calculations to prevent evasion while protecting consumers.
• Disclosures: Requires lenders to prominently display the "fee and interest rate" (labeled as "FAIR") on statements for open-end credit and potentially other plans.
• Enforcement and Penalties:
• Violations make loans unenforceable; consumers can recover all payments and use violations as a defense against collection or repossession indefinitely.
• Criminal penalties: Up to 1 year in prison and fines (three times the debt or $50,000, whichever is greater) per violation.
• State attorneys general can sue for injunctions within 3 years.
• Relation to State Laws: Does not override state laws that offer stronger consumer protections.
• No Exemptions: The CFPB cannot exempt any lenders or products from this cap.

Significant Changes to Existing Law

• Amends the Truth in Lending Act (TILA, a federal law requiring clear disclosure of credit terms) by adding a new section (140B) that imposes a uniform 36% federal cap, building on a similar 2006 cap for military families but extending it nationwide.
• Closes loopholes in state laws and federal preemption rules that allowed high rates (e.g., 400% on payday loans, 17,000% on overdrafts) by including all fees in the cap calculation, unlike prior laws focused only on interest.
• Mandates new disclosures and removes the CFPB's discretion to exempt categories, ensuring broad application to all consumer credit forms.

Potential Impacts

• On Citizens: Reduces borrowing costs for low-income or cash-strapped individuals by limiting predatory loans, potentially saving billions annually (e.g., from $12 billion in overdraft fees). Encourages affordable alternatives like small-dollar installment loans with low fees, but could limit credit access if lenders reduce offerings.
• On Government Agencies: Empowers the CFPB to regulate calculations, adjust tolerances for inflation, and enforce rules; increases workload for state attorneys general in pursuing violations.
• On International Relations: Minimal direct impact, though it may affect U.S. lenders operating abroad by standardizing domestic practices.
• Broader Economy: Could curb $25 billion+ in annual high-cost lending revenues, shifting markets toward lower-rate options and reducing debt cycles for vulnerable consumers.

Main Stakeholders Affected

• Consumers: Primary beneficiaries, especially those using high-cost credit like payday or title loans.
• Creditors and Lenders: Banks, payday lenders, online installment providers, and fintech companies face revenue limits and compliance costs; some may exit high-risk markets.
• Regulators: CFPB gains enforcement tools; state attorneys general can act more aggressively.
• Military Families: Builds on existing protections, extending similar benefits broadly.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens TILA enforcement with criminal penalties and indefinite defenses for consumers, potentially increasing lawsuits. The non-preemption of stronger state laws preserves federalism (division of power between federal and state governments) but may create a patchwork of rules.
• Constitutional: Relies on Congress's commerce power to regulate interstate lending; could face challenges if seen as overreaching into state usury laws (traditional state domain), though findings cite national economic harms from predatory practices.
• Political: Promotes consumer protection amid bipartisan concerns over debt traps, but may spark debate on balancing borrower safeguards with credit availability for underserved groups. No exemptions ensure uniform application, reducing favoritism claims.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Durbin, Richard J. [D-IL]

Cosponsors (2)

Sen. Blumenthal, Richard [D-CT], Sen. Whitehouse, Sheldon [D-RI]

Recent Actions

• 2025-09-11: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs. (text: CR S6577)
• 2025-09-11: Introduced in Senate

Bill Versions

• Protecting Consumers from Unreasonable Credit Rates Act of 2025 — issued 2025-09-11 — PDF (10 pages)