A Republican lawmaker defended the lack of a federal prohibition on usury by citing economic problems in East Germany before its 1989 collapse.
Rep. Warren Davidson (R-Ohio) was attacking a proposal to cap consumer interest rates in the United States at 36 percent. The legislation was introduced during a House Financial Services Committee meeting on Wednesday by Rep. Maxine Waters (D-Calif.), the ranking Democrat on the panel.
“That’s what they experienced on the other side of this [Berlin] Wall that had held them captive behind a Marxist ideology,” Davidson said, linking East German shortages to Waters’ proposal. “That’s the land of price control, of government rationing, of one-size-fits-all central planning,” he added.
Federal regulators, however, have found that high-interest short-term lenders have lured Americans into ruinous products they struggle to pay off. The Consumer Financial Protection Bureau finalized a rule last month that seeks to force payday lenders to determine if a borrower can afford credit, before extending it.
The CFPB is expressly prevented by law from imposing usury thresholds. Over a dozen state governments have already passed laws capping interest rates at 36 percent. Interest rates on loans to active duty servicemembers are also restricted to 36 percent, under the Military Lending Act.
Waters introduced her legislation as a last minute amendment to a bill that would enable payday lenders to circumvent state-level usury limits. It failed in a voice vote on Wednesday morning, and is expected to fail in a recorded vote later on Wednesday.
The broader bill preempting state level interest caps has a good chance of eventually being signed into law by President Trump. The legislation is backed by Democrats in both the Senate and the House. Liberal supporters include Reps. Gregory Meeks (D-N.Y.) and Gwen Moore (D-Wis.), and Sens. Mark Warner (D-Va.) and Gary Peters (D-Mich.).
As The Huffington Post noted on Monday, a number of consumer advocacy groups and civil rights organizations oppose the measure—the so-called Protecting Consumers’ Access to Credit Act.
The groups said in September that it would “open the floodgates to a wide range of predatory actors to make loans at 300 precent annual interest or higher.”
Waters cited these concerns when discussing her opposition to the legislation, before introducing her amendment.
She said the bill would permit “third parties to buy debt to collect interest rates that preempt state usury laws.” Its passage would effectively enable loansharking across the country, erasing numerous state laws.
Meeks denied that charge, saying he wanted legislation to give license to certain firms who employ modern technology to offer financial services.
“Any suggestion this bill is a backdoor for payday lenders is false,” he said. Unlike his Republican co-sponsors, however, Meeks did vote in favor of the Waters amendment.
