Delaware and 11 other states were taken to task for not have an interest rate cap for loans, according to a report from the National Consumer Law Center.
“Our analysis shows a general consensus among the states that APR caps should be well below 36 percent for these larger, longer-term loans,” said National Consumer Law Center Deputy Director Carolyn Carter, the primary author of the report.
Advocates for high-interest rate loans say the interest rates reflect the risks of the lender in not getting the loan money back.
The lending laws in Delaware, Missouri, North Dakota, Ohio, and Virginia impose no limit. Other states have no cap on interest rates but prohibit figures that “shock the conscience.”
The report focused on a five-year $10,000 loan.
Recommendations include
- Imposing a cap on interest rates.
- Ban or strictly limit fees for credit insurance and other add-on products
- Ensure that the consumer can afford to repay the loan.
The lack of such a cap brought banks to Delaware in the 1980s, with financial services remaining a key industry in the state.
Efforts to authorize interest rate caps have almost nonexistent in Delaware, due in large part to the presence of the banking industry.
Some steps were taken to deal with abuses on payday loans with interest rates that can run into the hundreds of percentage points.
The changes came after a Chancery Court decision involving a woman whose small loan ballooned after failing to keep up on payments.
Payday loans are outlined in other states, including Pennsylvania.
