Pawn shop owners fear that a bill introduced by Senator Dick Durbin (D-IL) could “force them to shut down,” WHSV in Virginia reports. According to the report, Senator Durbin’s bill “could cap consumer interest rates at 36 percent.”
Short term loans like those given by pawn shops fall under this legislation. Pawn shop owner John Hoying, owner of Royal Pawn in Front Royal, says that amount won’t cover the cost of processing the loan.
Hoying says pawn shops are an important life line.
“You close a pawn shop, people won’t be able to go out and buy their medications, won’t be able to pay their copay for the doctors that they have to pay for their children who are sick,” says Hoying. “I’ve had people pawn items so that they could get diapers and baby formula.”
The legislation is called the Protecting Consumers from Unreasonable Credit Rates Act (S. 500). According to a press release, it would “eliminate the excessive rates and fees that some consumers are charged for payday loans, car title loans and other types of credit.”
Here are some key provisions listed in the release:
- Establish a new Fee And Interest Rate (FAIR) that incorporates all interest, fees, finance charges, and related costs of credit.
- Institute a federal maximum annualized FAIR limit equal to 36% and apply this cap to all open-end and closed-end consumer credit transactions, including mortgages, car loans, credit cards, overdraft loans, car title loans, refund anticipation loans, and payday loans.
- Encourage the creation of responsible alternatives to small dollar lending, by providing tolerances for initial application fees and for ongoing lender costs such as insufficient funds fees and late fees.
- Ensure that this federal law does not preempt stricter state laws.
- Create specific penalties for violations of the new cap and support enforcement in civil courts and by State Attorneys General.
Currently, it has only one cosponsor: Senator Sheldon Whitehouse (D-RI). You can read the bill text here.
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