Pennsylvania Loan Rate Caps

I tried to get on loan recently on Prosper.com and found out an interesting piece of information. Pennsylvania actually limits how much interest one person can change another for a personal loan, and it’s a very low 6%. Prosper has created a web page listing all the states and their limits on personal loans.

Well, not being one to passively sit by and live with it, I sent a letter to Pennsylvania State Senator John Rafferty, and to State Representative Tim Hennessey asking them to consider looking into raising the interest rate limits in Pennsylvania, especially since, in the 1980s, Federal laws were passed that made those state laws not apply to banks and credit card companies.

Dear Senator Hennessey,

Recently, I have been participating in peer-to-peer lending via the “Prosper.com” website. I am finding that loaning money to other people to be a good investment, and is serving to help others at the same time. However, the laws in this state are currently limiting the participation of Pennsylvania state residents in the Prosper program, and other programs like it.

As you may know, different states have set different limits for the maximum rates of personal loans, for the purpose of preventing people from being victimized by predatory lending. Pennsylvania has one of the lowest rates in the U.S., limiting the interest rate of personal loans at 6% annually. However, due to federal laws, banks and credit card are exempt from these limitations. Pennsylvania has one of the lowest limits in interest rates, while states like Idaho, Illinois, New Hampshire, and California allow people to have personal loans at up to 30% interest.

While I appreciate the original intention of the usury laws, it seems that the laws currently only serve to prevent individuals from competing with the large banks and credit card companies. I personally have desired to borrow through the prosper site, but have been unable to do so due to limits of the states laws. I have also found that entities like Prosper have allowed people to help other people out, and keeping capital in the hands of individuals, and not putting more money in the hands of credit card companies.

I am writing to ask that you consider looking into legislation raising the interest limit for personal loans to a rate that would allow people like me and other Pennsylvania residents to borrow at a rate competitive to residents of other states.

Yours Truly

Thomas Albrecht III

I’m interested to see what their reply is…

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