What ought to be on the table: Capping credit card interest rates

[depakid]

Bernie Sanders lays out the case:

...In the midst of this financial disaster, one of the great frustrations that I hear from my constituents is that while taxpayers are spending hundreds of billions bailing out major financial institutions, and while these big banks are getting near-zero interest rate loans from the Fed, these very same financial institutions are now charging Americans 20 percent or 30 percent interest rates on their credit cards.

One-third of all credit card holders in this country are now paying interest rates above 20 percent and as high as 41 percent — more than double what they paid in interest in 1990.

(Note: for those who don't recall what interest rates for banks were in 1990: http://www.the-privateer.com/rates.html )

Recently, some major institutions such as Bank of America have informed responsible cardholders that their interest rates would be doubled to as high as 28 percent, without explaining why the increase was taking place.

Let’s be clear: At a time when many Americans in the collapsing middle class use credit cards for groceries, gas and college expenses, what Wall Street and credit card companies are doing is not much different from what gangsters and loan sharks do when they make predatory loans. While the bankers wear three-piece suits and don’t break the kneecaps of those who can’t pay back, they are still destroying people’s lives.

<snip>

That is why I have introduced legislation to require any lender in this country to cap all interest rates on consumer loans at 15 percent, including credit cards. Why did I select 15 percent as the appropriate rate to deal with the usury that is going on in this country? The reason is that 15 percent is the maximum that Congress imposed on credit union loans almost 30 years ago when it amended the Federal Credit Union Act. And that approach has worked!

Under current law, credit unions are allowed to charge higher interest rates only if their regulator, the National Credit Union Administration (NCUA), determines that it is necessary to maintain the safety and soundness of these institutions. Right now, while most credit unions charge lower rates, the NCUA allows credit unions to charge an interest rate as high as 18 percent.

Unlike their counterparts at the big banks, credit unions are not lining up for hundreds of billions in bailouts. In fact, they’re doing quite well. As Chris Collver, legislative and regulatory analyst for the California Credit Union League recently stated, “It hasn’t been an issue. Credit unions are still able to thrive.” In my view, if these rules have worked well for credit unions for decades they can work for all financial institutions.

In 1991, then-Sen. Al D’Amato (N.Y.) offered an amendment to cap credit card interest rates at 14 percent. The amendment passed the Senate by a vote of 74-19, but never became law. Now is the time to return to that debate.

Incredible as it may seem, over the last decade the financial sector has invested more than $5 billion in political influence purchasing in Washington. This includes funding some 3,000 lobbyists and contributing huge amounts to campaigns.

The American people are thoroughly disgusted with the behavior of Wall Street and they want their elected officials to respond to the greed of major financial institutions. A cap on interest rates would be a good start. Do we have the courage?

http://thehill.com/op-eds/stop-loan-sharking-cap-credit-card-interest-rates-2009-03-19.html

Bumping interest rates to 30% is a recipe for bankruptcy and failure- a lose/lose proposition.

[empyreanisles]

1. That's just a BIT too much government meddling in private commerce

Pass laws that force companies to make ALL the terms of their credit cards unambiguous. Then let consumers decide which credit card companies win or lose.

[depakid]

2. Disclosure laws have proven not to work

even when on occasion they're enforced. Truth in Lending did nothing to stop mortgage fraud on the consumer level (and henceforth other laws didn't stop toxics assets from being created and passed on up the line)

On the other hand- interest rate caps haven't caused any problems for credit unions- who are healthier and more responsible than any other set of financial institutions in the country.

It's been successful public policy- and at the very least, its inclusion in the package provides a bargaining chip that the Blanch Lincolns of the world have to deal with when they atempt to gut the bills on behalf of their patrons (and at the expense of their constituents and the overall economy).

[Raineyb]

7. No it's not. It's called a federal usury law

You know those pesky laws that states used to be able to use to control credit card rates. It's good enough for credit unions it should be good enough for the banks.

Regards

[ljm2002]

8. So, did you miss the part...

...where the same rules have worked out quite well for the credit unions? Those are privately run, as well, in case you didn't understand that.

The usual hue and cry of the deregulators: "But, but... but that would be *meddling*. By *government bureaucrats*! We can't have that!! Why, that would be the end of Private Enterprise As We Know It!!!"

Pfffft.

[Telly Savalas]

10. Then everybody could just transfer their balances to credit unions, yeah?

[ljm2002]

14. Oh I see...

...so it's not really about government "meddling in private enterprise". So what was your point, again?

[The Magistrate]

12. Nonesense, Mr. Isles

Laws banning usury have a long and distinguished pedigree: the government has every right to set the rules and protect people from predatory lenders.

[rucky]

13. They already are meddling, by allowing Credit Card companies...

to change the terms of an agreement at-will.

I don't know much about contract law, but can't think of any other situation where a creditor is allowed to do that.

[Vidar]

3. Amen to that.

[nichomachus]

4. Why don't we cap them

at five percentage points above what the banks are paying out in interest on savings accounts?

This allows the banks to make a reasonable profit, but keeping consumers from usurious rates.

Right now, BofA is paying 0.2% on savings -- so credit card rates should be 5.2%.

[Fire1]

5. Totally agree.

[dkf]

6. The question is should Americans be using credit cards for groceries, college tuitions, paying taxes

and all that stuff?

The Government etal should start encouraging the use of debit cards instead by putting in better protections and not allowing vendors to debit amounts in excess of what you sign on.

If I had my way credit cards would have limits equal to a percentage of annual take home pay, maybe 3 months net. If you reach your limit you should have to go to the bank with your pay stubs and get a signature loan.

[andym]

9. A good idea

Beyond helping average people to achieve more financial stability, it would have other advantages.

For example,
It would have potentially beneficial consequences in forcing certain kinds of usurious companies out of the credit business (those that give unsecured credit to predominately "high risk" individuals)


Also, it would reduce the ability of people with bad or no credit from getting credit and reduce the credit available to people with marginal credit. Although this would be problematic for some individuals (and put them at an economic disadvantage), it will benefit the majority of credit card holders and promote the health of the industry.

[Waiting For Everyman]

11. This is necessary.

There's NO REASON interest should be unlimited.

Banks have shown that they will not limit themselves in any way voluntarily. They have zero restraint, not even common sense, not even their own best interest. This is long overdue.

Thanks, Bernie! :applause:

[depakid]

15. A couple of other things to consider in this regard

not only are credit card companies in effect stealing from ordinary folks- thereby hurting the overall economy through decreases in disposable income that might be spent at local businesses... but they're also driving folks into bankruptcy- which deprives other creditors of sums that THEY are owed.

Moreover, as abusive and deceptive practices increase the number of delinquencies, it causes degradation of securitized debt up the line- impacting the financial system at a time when many institutions and investors can least afford it.

In the end, usury is a lose/lose proposition- even to the organizations who tirelessly lobby both parties to support.