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Senate postpones APR cap discussion
WASHINGTON (6/5/09)--The Senate Judiciary Committee on Thursday postponed its consideration of S. 257, the Consumer Credit Fairness Act, until next week. However, in anticipation of Thursday’s planned discussion, the Credit Union National Association outlined some concerns regarding the legislation in a letter delivered to Sens. Patrick Leahy (D-Vt.) and Jeff Sessions (R-Ala.). Although credit unions are not known for the types of abusive lending practices that this legislation intends to combat, the legislation could have the unintended consequence of forcing “mainstream lenders” to adjust their lending practices. The legislation, which would effectively cap annual percentage rates for loans of all kinds at 19% by amending the current bankruptcy code, could limit the availability of “convenient credit” to consumers and would likely raise the overall cost of credit card access, the CUNA letter said. As currently crafted, the bill would permit consumers that have been driven into debt by so-called "high cost" consumer credit card transactions to transition directly to Chapter 7 "fresh start" bankruptcy proceedings, even if the debtor failed the means test. Under the terms of the bill, a “high cost” loan would mean a loan in which the APR, at any time, exceeds the lesser of 15% plus the yield on 30-year U.S. Treasury securities, or 36%. Dealing with this seemingly shifting interest rate ceiling “would present an impossible compliance burden” for creditors and could limit the bankruptcy courts ability to interpret the law in a uniform matter, CUNA said. CUNA also observed that using the APR ceiling imposed by the Federal Credit Union Act as a basis for the standards in this and other bills or, more generally, as a justification for broadening existing APR caps, may be “confusing” and “misleading.” To see the letter in full, use the resource link.


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