A bill to raise the interest rate ceiling on personal loans and automobile loans by 40 percent was approved tentatively yesterday by the D.C. City Council. Little opposition is expected when the council takes a formal vote on the bill next Tuesday.
The legislation would boost the maximum permissible annual percentage rate lenders can charge for direct installment loans from 15 percent to 21 percent. All car loans financed by banks would also go up. If a D.C. car dealer financed a loan today, the interest charged could range from 21 1/2 percent for new vehicles to 28.3 percent for those over four years old.
The council also approved an increase in interest rate limits to 18 percent on all credit card purchases and advances. Current D.C. law allows a ceiling of 18 percent on the first $500 of such loans and 12 percent thereafter.
The revolving credit law is being amended to permit financial institutions to offer bank cards such as Visa and MasterCard. (The question was not addressed in the law previously.) Until now, no District banks have wanted to issue bank cards because the usury law rendered the cards unprofitable. If the ceiling is raised to 18 percent across the board, some D.C. banks are prepared to become card issuers, according to John Pollock, a spokesman for the D.C. Bankers Association.
That would make the District more attractive for lenders than Maryland, where the limits on credit card interest rates are 18 percent up to $700, but only 12 percent over that. Pollock does not anticipate, however, that the difference is sufficient to bring lenders to the District from other jurisdictions.
Moreover, he does not believe that with the prime rate around 18 percent, D.C. financial institutions will charge the maximum permissible on personal and car loans. Such is the case in Maryland where the ceiling on personal loans ranges from 33 percent for those under $500, down to 18 percent for loans over $6,000.
The usury limit for cars financed through dealers ranges from 21 1/2 percent for new autos to 27 percent for used. The maximum on car loans issued by banks is 18 percent, according to the commissioner of consumer credit. Virginia has no ceilings on personal or car-loan interest rates.
The D.C. legislation strikes a compromise between those business interests asking ceilings to be set at 24 percent and 21 percent and consumer groups, like Neighborhood Legal Services, which pushed for a flat 18 percent limit.
There is no sentiment in the District, said a city council staff member, for abolishing usury laws altogether, as a number of states have done.
According to Consumers Union, 11 states permit unlimited interest rates on personal bank loans. In 17 others, the range is from 25 percent to 45 percent; from 20 percent to 24 percent in 10 states; and from 18 percent to 19 percent in 8 states. Arkansas is lowest with a constitutionally fixed interest rate of 10 percent.
This disparity in usury laws across the country has, in the opinion of the business community, caused credit to dry up in some areas. Congress has a bill before it to allow federally chartered financial institutions to override state usury laws on consumer loans, just as they can do on business, agricultural and residential mortgage loans. The administration supports the legislation as do many members of Congress, despite their concerns about high interest rates.
At a hearing on Capitol Hill yesterday, Rep. Frank Annunzio (D-Ill.), chairman of the House subcommittee on consumer affairs, declared, "If the Reagan administration and the Republican-controlled Senate want to force millions of Americans to pay extortionate interest rates, then that is a decision they are going to have to make. . . . I will never sell out the consumers of America to high interest rates."