Personal Loan Rates and Predatory Annual Percentage Rates: Why Bank Charters for High-Cost Lenders Would Hurt Consumers

Lauren Saunders serves as a senior attorney at the National Consumer Law Center in Washington, D.C.

Interest Rate Promises Versus Reality

Responding to affordability concerns, President Donald Trump floated a temporary 10% ceiling on credit card interest rates, yet card pricing stayed steep, with averages above 23% in April.

Personal loans can be a lower-cost alternative to revolving credit, but pricing varies widely. Many mainstream lenders advertise annual percentage rates that can range from the high single digits for borrowers with strong credit to the mid-30% range for borrowers with weaker credit, with the rate driven by factors such as credit score, income stability, existing debt obligations, loan term, and whether the lender views the loan as higher risk.

Typical requirements to qualify for a personal loan include a credit history that meets the lender’s minimum standard, verifiable income, and a manageable debt-to-income ratio. Lenders commonly ask for documentation such as government-issued identification, proof of income (pay stubs, tax forms, or benefit letters), recent bank statements, proof of address, and a Social Security number for identity and credit checks.

Funding speed also depends on the lender and the borrower’s file. Some online lenders can issue a decision quickly and fund as soon as the same or next business day, while banks and credit unions may take longer if additional verification is needed; delays are more likely when income is hard to document, identity checks require follow-up, or the requested loan amount is large.

Borrowers often use personal loans for debt consolidation, home repairs, medical bills, emergency expenses, or other major purchases. Many lenders restrict uses tied to illegal activity, and some limit loans for business purposes or certain categories of spending, with the permitted uses spelled out in the loan agreement.

Fees can materially raise the cost of borrowing even when the stated interest rate looks reasonable. Common charges include origination fees taken from the proceeds, late-payment fees, returned-payment fees, and collection-related costs, with any fees and the full annual percentage rate typically disclosed in pre-funding paperwork and the final loan contract.

A personal loan can also affect a credit score in multiple ways. Applying may trigger a hard credit inquiry, opening a new account can change the average age of credit, and missed payments can cause serious damage; on the other hand, consistent on-time repayment may help build payment history, and consolidating high-utilization credit card balances into an installment loan can improve a borrower’s credit profile if spending stays in check.

Large-dollar borrowing is particularly sensitive to underwriting. Getting a $100,000 personal loan is often difficult because many lenders do not offer that amount unsecured, and those that do typically expect strong credit, high and stable income, and a low debt-to-income ratio, with approval becoming harder if the applicant has recent delinquencies, heavy existing obligations, variable income, or limited credit history. Some borrowers can improve approval odds with a co-borrower, collateral, or by seeking the loan through a relationship bank or credit union that offers higher limits to well-qualified members.

People who receive Social Security Disability Insurance benefits may still be eligible for a personal loan, because many lenders will count disability benefits as income if the payments are ongoing and verifiable. Challenges can include lenders that require current employment, tighter debt-to-income thresholds due to fixed income, and the risk that high-cost lenders structure repayments around automatic withdrawals that can strain a household budget.

Some borrowers look to family loans as an alternative to high-cost credit, but informal lending has its own traps. The so-called $100,000 family loan loophole refers to federal tax rules that can limit the amount of “imputed” interest treated as a taxable transfer when a below-market loan between individuals does not exceed $100,000 and the borrower has little or no net investment income; in practice, families may write a promissory note and charge a very low rate, and the lender may not be forced to recognize as much interest income as would apply on a larger below-market loan. Even so, families should document terms and repayment, because poorly documented arrangements can be recharacterized as gifts, and charging at least the applicable federal rate can help avoid unintended tax consequences.

Online Lender Bank Charters

The administration is weighing whether to let online lenders that levy triple-digit annual percentage rates obtain national bank charters, sidestepping state interest caps and oversight.

Such a move would let NetCredit, owned by Enova, and Opportunity Financial, known as OppFi, push costly loans across the country, including in as many as 45 states that prohibit those rates—inviting imitators to follow.

Annual Percentage Rate Preemption Would Supercharge High-Cost Loans

NetCredit’s annual percentage rate can reach 100%, but the company steers clear of Colorado, Georgia, Iowa, New York, North Carolina, South Dakota, and West Virginia because those states cap interest and enforce their laws. In states without meaningful interest rate caps, or where caps are set high enough, loans carrying 100% annual percentage rates can be legal even though similar loans are unlawful in states that limit rates and actively enforce those limits.

In 2021, OppFi was compelled to stop skirting usury limits in Washington, D.C., and pay a penalty of more than $2 million.

If Trump-appointed regulators approve Enova’s and OppFi’s bids to buy small national banks, the companies could impose 100% annual percentage rates—or more—without fear of state usury claims, because national banks may export the interest rate allowed in their home state.

When state law sets a rate cap, that cap can curb high-cost lending inside the state, but a federal bank charter can shift which law governs the loan and, in some cases, allow a lender to rely on the rules of a different state.

These sky-high charges can reward investors, but many borrowers cannot repay. Loss rates have repeatedly topped 50%, signaling the debts were unaffordable from the outset.

Approving the charters would effectively authorize these products nationwide and expose people in every state to online loan sharks, pushing households into distress.

Policy Actions to Protect Consumers

President Trump should direct financial regulators to reject the bank applications from Enova and OppFi rather than reward firms with records of driving borrowers into hardship.

If genuine relief from high-cost debt is the goal, he should crack down on expensive credit schemes instead of blessing 100% annual percentage rate lending, and press Congress for a national rate ceiling across products such as personal loans and credit cards.

The Predatory Lending Elimination Act would extend the proven 36% annual percentage rate cap that safeguards servicemembers to everyone, stopping triple-digit annual percentage rate loans even when issued by a bank.

He should also urge passage of the Empowering States’ Rights to Protect Consumers Act to close the loophole that lets banks and their card divisions ignore state interest limits that are often below 36%.

Working- and middle-class families are squeezed by rising costs, and the administration can act. It should rein in predatory outfits like Enova and OppFi and match affordability rhetoric with concrete policy.