On February 21, 2026, Senator Jack Reed (D-RI) introduced S. 3793, the Predatory Lending Elimination Act, with 15 cosponsors in the Senate.[1] The bill proposes a nationwide 36% APR cap on consumer loans by extending the Military Lending Act (MLA) framework to all consumers.[2] If enacted, this legislation would reshape the lending landscape for banks, non-bank lenders, and everyone in between.
For alternative lenders, MCA providers, and factoring companies, this bill demands attention. Not because it would necessarily apply to commercial products directly, but because the regulatory ripple effects could change how lenders of all types operate, price, and verify borrowers.
What the Bill Does
S. 3793 amends the Truth in Lending Act (TILA) to create a federal interest rate ceiling.[3] Here are the specifics:
- Establishes a 36% APR cap on all consumer credit products, including fees and charges rolled into the cost of borrowing[1]
- Extends the Military Lending Act (MLA) framework from active-duty military and their dependents to every U.S. consumer[4]
- Covers all lender types, including banks, credit unions, and non-bank financial companies[2]
- Eliminates common workarounds used by high-cost lenders, including hidden junk fees, mandatory arbitration clauses, and rate structures designed to circumvent state-level caps[4]
- Targets payday loans, auto-title loans, and similar high-cost products that currently operate in states without rate caps or with caps well above 36%[1]
The bill builds on the MLA, which has been in effect since 2007 and was strengthened in 2015.[5] Lenders who already serve military borrowers are familiar with the compliance framework. That existing familiarity is part of the bill's design: it lowers the implementation burden by using a regulatory structure the industry already understands.
The Consumer Federation of America, Center for Responsible Lending, and National Consumer Law Center (NCLC) have all endorsed the legislation.[4] NJ Citizen Action joined the supporting coalition as well.[6]
This is not the first attempt. A previous version, S. 3549, was introduced during the 118th Congress in 2023-2024 but did not advance out of committee.[7]
What Alternative Lenders Need to Know
The immediate question for MCA providers, factoring companies, and revenue-based financing firms: does a consumer lending bill affect commercial products?
The short answer is no, not directly. Merchant cash advances and commercial factoring are structured as commercial transactions, not consumer loans. Revenue-based financing typically falls outside TILA's consumer lending definitions.
The longer answer is more nuanced. Here is what risk and compliance leaders should be tracking:
1. Regulatory attention is expanding, not contracting. A 36% APR cap on consumer products signals that Congress is scrutinizing lending practices broadly. State-level regulators have been increasing oversight of commercial lending as well, with California's SB 1235 disclosure requirements[8] and New York's commercial finance disclosure rules already in effect.[9] The political momentum runs in one direction.
2. The "true lender" question remains unresolved. Bank-fintech partnerships that originate consumer loans could face new constraints under this bill. If your business model involves purchasing receivables from consumer lenders, the upstream pricing changes will affect deal flow, portfolio quality, and borrower behavior.
3. Dual-purpose borrowers create classification risk. Many small business owners use personal credit for business purposes, and many business lending products serve borrowers who could be classified as consumers under certain circumstances. If the APR cap becomes law, lenders who operate in gray areas between consumer and commercial lending will face heightened scrutiny on product classification.
4. Due diligence standards will tighten. Regardless of whether a specific product falls under the cap, regulators and auditors will expect lenders to demonstrate that they know who they are lending to, that the business entity is legitimate, and that the transaction is properly classified. Documentation and verification audit trails become more valuable in this environment.
The Verification Angle
Expanded regulatory scrutiny raises the bar on borrower and entity verification across the board. Lenders who can demonstrate thorough due diligence processes, including real-time business entity verification and timestamped audit trails, are better positioned to weather regulatory changes. Tools like real-time Secretary of State lookups help lenders confirm that a business is active, properly registered, and operating in good standing before extending capital, which supports both compliance requirements and responsible lending practices.
What to Watch
Likelihood of passage: Low to moderate in this Congress. The previous version (S. 3549) did not advance,[7] and the current bill faces opposition from banking industry groups who argue that a 36% cap would restrict credit access for higher-risk borrowers.[10] However, the 15-cosponsor count at introduction shows meaningful support, and consumer advocacy groups are well organized behind this effort.[4]
Timeline: Expect committee hearings in the Senate Banking Committee in Q2 2026. If the bill gains traction, floor debate would likely push into late 2026 or early 2027.
Industry reactions to monitor:
- American Bankers Association (ABA) and Consumer Bankers Association (CBA) positions on the rate cap, particularly whether they oppose or seek modifications
- State-level legislative activity in states that currently have no APR cap, where this bill could accelerate local action even without federal passage
- CFPB enforcement priorities under the current administration, which could signal whether the regulatory appetite aligns with congressional proposals
- Fintech and marketplace lender responses, especially from platforms that rely on bank partnerships to access rate exportation
The practical takeaway for risk leaders: Whether or not S. 3793 becomes law, the direction of regulatory oversight is clear. Lenders who invest in proper entity verification, maintain clean audit trails, and can demonstrate responsible lending practices are building the infrastructure that compliance demands today and regulators will require tomorrow.
Cobalt Intelligence provides real-time business verification data from all 50 Secretary of State databases through a single API. Learn more about how automated entity verification supports compliance and due diligence workflows.
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