As too many Americans know, loans with monstrous interest rates can lead to what seems like endless rounds of debt and bills.

And, in some cases, excessive interest rates can push struggling consumers to filing bankruptcy.

The “Consumer Credit Fairness Act,” a bill now before the Senate Judiciary Committee, would give consumers a little help for dealing with such costly loans.

Proposed Terms of the Consumer Credit Fairness Act

As it now stands, the proposed legislation would do two major things for Americans:

• Limit creditors’ collection rights in bankruptcy: Lenders whose loans came with excessive interest rates (defined by the bill as 15 percent higher than the current yield on a 30-year U.S. Treasury bond) would come last on the list of creditors to be repaid in bankruptcy court.
• Improve consumers’ chances of bargaining for lower rates: Because of the above change, consumers would likely be able to negotiate lower interest rates with their creditors instead of filing for bankruptcy.

How the Consumer Credit Fairness Act Could Help You

Imagine this scenario: you’ve got one or more loans with interest rates that are through the roof (credit cards, car loan, payday loan, overdraft loan, etc.).

Unless you can get your creditors to lower their interest rates, there’s no way you’ll be able to continue making payments and you’ll have to file for bankruptcy. So you call up your creditor:

• YOU: Hello, I’d like you to lower my interest rates.
• CREDITOR: Why should I do that? That means I’d collect less moola from you, a struggling consumer.
• YOU: Well, you see, if you don’t lower my rates, I’ll file bankruptcy. And, thanks to the Consumer Credit Fairness Act, your loans will be the last on my repayment list. So you might not get any money at all.
• CREDITOR: Hm. That doesn’t sound too good.
• YOU: Exactly.
• CREDITOR: All right. How does [insert lower rate here] sound?
• YOU: Excellent.

While the above dramatization may illustrate a slightly simpler procedure than you’ll actually go through should this bill pass into law, it does show the essentials of how the legislation may likely work.

Opponents Predict Tighter Credit

Some have criticized the bill as being too generous to consumers, suggesting that, should it become law, it would limit creditors’ overall ability to lend money.

But supporters contradict this claim, insisting that the bill would more likely push lenders to rely more universally on types of loans with more reasonable interest rates.