Federal 36% Cap on Credit Rates: Bill Aims to End 400% Payday Loans and Overdraft Fees

If you’ve ever looked at a credit card statement or a loan agreement and felt like you needed a finance degree just to figure out what you were actually paying, this bill is for you. The Protecting Consumers from Unreasonable Credit Rates Act of 2025 is trying to draw a hard line on predatory lending by setting a national maximum interest rate of 36% on virtually all consumer credit.

The All-Inclusive 36% Ceiling

What makes this bill a game-changer isn't just the 36% number—it’s what the number includes. Currently, lenders often sneak extra charges, like processing fees, late fees, or mandatory insurance, outside the advertised Annual Percentage Rate (APR). This bill mandates that everything you pay, directly or indirectly, must count toward that 36% cap. This means standard interest, annual fees, cash advance fees, and even penalties like late fees, insufficient funds fees (NSF), and over-limit fees are all folded into the calculation. This is designed to slam the door on practices where lenders charge a modest interest rate but pile on fees that push the true cost of borrowing into the hundreds or even thousands of percent, like the 400% APR often seen in payday loans or the astronomical rates found in some high-fee overdraft programs (SEC. 3).

The Real-World Impact: Goodbye, Fee Traps

For the average person juggling bills, this change is huge. Think about that moment when your checking account dips low, and you get hit with a $35 overdraft fee, which the bill notes can sometimes translate to 17,000% interest on the small amount borrowed. Under this new rule, those fees can’t exist as they do now if they push the total cost of your credit relationship above the 36% threshold. If you rely on a high-interest payday or car title loan just to make it to the next paycheck, this bill effectively makes those 300% to 400% loans illegal. This could save consumers billions currently spent on high-cost debt, especially hitting the $12 billion spent annually on overdraft fees alone (SEC. 2).

There are only a few, very narrow exceptions to this all-inclusive calculation. For installment loans paid back over 90 days or more, lenders can exclude certain upfront application fees, but only if those fees are capped at $30 or 5% of the credit limit (up to $120 total) and the loan is at least $300. They also get a little wiggle room for state-authorized late fees (up to $8 per late payment) and insufficient funds fees (up to $15), but even these small amounts are subject to future adjustments by the Bureau (SEC. 3).

What Happens When Lenders Break the Rules?

This bill doesn’t mess around when it comes to enforcement. If a lender violates the 36% cap, the loan is declared completely void—meaning you don't owe the principal, interest, or fees. The creditor must immediately return every penny you paid, and any collateral you put up (like your car for a title loan) must be returned. Crucially, even if the statute of limitations runs out, you can still use the violation as a defense if the lender tries to sue you later. For lenders who knowingly violate the law, the penalties are severe: up to one year in prison and fines of up to $50,000 per violation, or three times the accrued debt, whichever is greater (SEC. 3).

While this is a massive win for consumer protection, it does create a challenge. The lenders who currently provide high-cost, short-term credit to subprime borrowers—who often have few other options—may simply stop offering those products. While the goal is to encourage safer alternatives, there is a risk that some consumers might temporarily lose access to credit or be pushed toward unregulated, illegal lending markets. The bill also updates credit card disclosures, requiring them to use a new, standardized “FAIR” format to make costs clearer for consumers (SEC. 4).