Senate Bill Would Let States Cap Credit Card Interest Rates

Legislation that would allow individual states to cap interest rates was recently introduced in the U.S. Senate. U.S. Senators Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA), Jack Reed (D-RI) and Jeff Merkley (D-OR) introduced the legislation on Jan. 30. 

The goal of the legislation is to protect Americans from high interest rates on credit cards and consumer loans. A press release from Whitehouse pointed out that Americans hold $1.23 trillion in credit card debt.

“Too many Rhode Islanders are stuck under a mountain of credit card debt that is driven ever-higher by compounding interest rates and fees dictated by corporations,” said Whitehouse. 

“Our bill will restore to states the ability to protect their own citizens from predatory rates and help get families more breathing room on their credit card bills.”

The Senate bill would allow each state to cap interest rates on credit cards and other loans for the consumers in their state. 

“Americans are struggling under mountains of credit card debt with astronomically high interest rates of 25, 30, even 35%,” Warren said.

“Congress must act to bring down those interest rates at a federal level — but it’s also critical that states have the ability to deliver relief. Anyone who supports lowering costs for Americans should support this bill to allow states to do their jobs.”

Meanwhile, consumers struggling with debt continue to deal with other factors beyond their control.

“The pandemic, inflation, and the current affordability crisis have made clear that consumers need both access to credit and strong protections against predatory actors,” said Andy Posner, Founder and Chief Executive Officer of Capital Good Fund.

Opponents of the bill, including America’s Credit Unions, say it would make compliance much more complex.  

“Creating a patchwork of state-by-state interest rate caps is not the right solution,” said Scott Simpson, President and Chief Executive Officer of America’s Credit Unions.

“This approach would create a fragmented lending system, increase compliance complexity, and ultimately reduce the availability of responsible lower-cost credit offered by not-for-profit credit unions,” he said

As mentioned, capping interest rates at the state level would make compliance more difficult, and subprime lenders would not be immune to this side effect of the proposed legislation. 

Subprime lenders also may be harder hit by the cap on interest rates at the state level since they charge some of the highest interest rates to borrowers with the riskiest credit profiles.

Capping interest rates on credit cards and other loans would essentially lower the credit card rates that can be charged in a state and this would impact lenders’ profit margins in each state.

President Trump began pushing early this year for a 10% rate cap on all credit cards for a year. Banks are against this rate cap and say it would greatly restrict access to credit and hurt the economy. Bank of America and Citibank are considering offering new credit cards with 10% interest rates.

In addition, Sen. Bernie Sanders (I-VT) has proposed legislation that would cap interest rates on credit cards at 10% for at least five years.

A bill introduced in the U.S. Senate would allow states to cap interest rates on credit cards and consumer loans. The aim of the bill is to lower credit card interest rates, but opponents point out that the bill would make compliance complex and result in a fragmented lending system.