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maximum statutory APR14 for four typical consumer small loan products and whether the state’s criminal usury cap limits the in- terest charged for those products. The issue of criminal usury caps was included in this evaluation because some of these caps reect the outer limit of acceptable interest that a state is willing to criminalize and, in the case of New York and New Jersey, provide the cap for small consumer loans.

The Scorecard evaluates maximum APRs because payday and auto-title lenders tend to charge an APR near the applicable statutory limit.15 Moreover, APR caps are the most ef- fective way to protect consumers against abu- sive lending practices compared with other reforms in these markets. A report on payday lending by the Center for Responsible Lending (CRL) explains how reforms short of rate caps have failed to protect consumers adequately.16

14 The Truth in Lending Act APR is a uniform way to determine the true cost of a loan. It is expressed as a percentage and includes some of the fees and charges associated with the loan, as well as the interest to be earned over the term. For purposes of the Scorecard, the APR is calculated pursuant to the requirements of the Truth in Lending Act. See 15 U.S.C. §§ 1605, 1606. The APR has been the credit cost yardstick in this country for forty years and aims to provide an apples- to-apples comparison of the cost when consumers shop. See Elizabeth Renuart & Diane Thompson, The Truth, The Whole Truth, and Nothing but the Truth: Ful- lling the Promise of Truth in Lending, 25 Yale J. on Reg. 181, 186–91 (2008); Matthew A. Edwards, Empirical and Behavioral Critiques of Mandatory Disclosure: Socio- Economics and the Quest for Truth in Lending, 14 Cornell J.L. & Pub. Pol’y 199, 211–15 (2005).

15 Mark Flannery & Katherine Samolyk, Payday Lend- ing: Do the Costs Justify the Price? 9 (FDIC Center for Financial Research Working Paper, June 2005), avail- able at http://www.fdic.gov/bank/analytical/cfr/ 2005/wp2005/cfrwp_2005-09_annery_samolyk.pdf.

16 Uriah King & Leslie Parrish, Center for Responsible Lending, Springing the Debt Trap: Rate Caps Are

NATIONAL CONSUMER LAW CENTER

The CRL report examined the impact of reforms other than rate caps, such as: payment plans which require loans to amortize; bans on renewals or a cooling-off period between renewals; limits on loan amounts based on a borrower’s income; limits on the number of loans a borrower can have at the same time; and establishing databases to monitor com- pliance with payday lending requirements. The report found that the debt trap of payday lending continues even where such reforms have been implemented. In states that have implemented these non-rate cap reforms:

  • Borrowers who have ve or more loans each year account for 90% of the payday lending business;

  • Borrowers who have twelve or more transactions per year get over 60% of payday loans;

  • Borrowers who have twenty-one or more transactions per year get 24% of loans;

  • Approximately 14% of Colorado payday loan borrowers has had payday debt for the past six months—each day; and

  • Almost 90% of repeat payday loans are made on the heels of repayment of an earlier loan.17

The CRL report concluded that: “Those states which enforce a comprehensive interest rate cap at or around 36 percent for small

Only Proven Payday Lending Reform (Dec. 13, 2007), available at http://www.responsiblelending.org/ payday-lending/research-analysis/springing-the- debt-trap.pdf.

17 Uriah King & Leslie Parrish, Center for Responsible Lending, Springing the Debt Trap: Rate Caps Are Only Proven Payday Lending Reform 9–18 (Dec. 13, 2007), available at http://www.responsiblelending.org/ payday-lending/research-analysis/springing-the- debt-trap.pdf.

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