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Congress Is Voting on a Bill That Could Make Debt Traps Legal Once Again

Congress Is Voting on a Bill That Could Make Debt Traps Legal Once Again

Today, the House of Representatives votes on a conclusion run around state customer security laws and regulations. If it passes, the balance would overturn state efforts to quit payday loan providers from billing triple-digit annual rates of interest and producing unsecured debt traps that may turn a $1,000 loan into a $40,000 financial obligation.

The bill—misleadingly entitled “Protecting customers’ use of Credit Act of 2017”—claims to be a reply to a current federal court choice in an incident called Madden v. Midland. Ms. Madden launched a charge card; whenever she dropped behind on payments, it had been offered to Midland Funding, a debt collector. Midland attempted to charge her mortgage loan of 27 %, more than brand new York’s limit that is legal of %, and also the judge ruled that while banking institutions aren’t at the mercy of state rate of interest caps—consistent with rulings heading back a few years that resulted in the quick development of credit cards—nonbanks, such as for example a debt collector, are. The Second reached the decision Circuit, and just relates to ny, Connecticut, and Vermont.

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Both houses of Congress have proposed a so-called “Madden fix” that would declare that any valid loan made by a bank stays valid if that loan is later sold or transferred to a nonbank in the bill.