U.S. Senate Democrats introduced legislation Tuesday to cap annual interest rates for all consumer credit transactions.

The bill, S.673, or “Protecting Consumers from Unreasonable Credit Rates Act” - establishes a national usury rate for consumer credit transactions. Sponsored by Dick Durbin (D-Ill.), the bill would cap rates at 36%.

The bill has four co-sponsors: Sen. Richard Blumenthal (D-Conn.), Sheldon Whitehouse (D-R.I.), Jeff Merkley (D-Ore.) and Barbara Boxer (D-Calif.). The sponsors expect minimal impact on most credit products because annual interest rates on large common loans – credit cards, mortgages and car loans – seldom exceed 36%.

The cap would apply to all consumer credit transactions - including credit cards, mortgages, overdraft loans, auto loans, car title loans, refund anticipation loans and payday loans.

“For some, payday lenders offer a quick way to make ends meet, but often with devastating consequences. With interest rates of two and three hundred percent of value of the loan, these excessive rates and hidden fees have crippling effects on those who can afford it least. Capping interest rates and fees for consumers is a fair and sensible thing to do to protect working families during our economic recovery," Durbin said in a statement.

The effective annual percentage rate (APR) of interest on a payday loan can jump because the loan’s interest is typically calculated on a weekly basis. Many short-term lenders have begun charging a flat origination fee instead of interest but the fees result in high effective APRs when calculated using typical interest methods. Many states have cracked down on payday lending, passing their own legislation on the high-interest loans. 

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