Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez have proposed a bill targeting usurious lending, including a 15 percent APR cap on credit card interest rates. The average card APR is nearly 18 percent.
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Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) on Thursday proposed a bill targeting usurious lending, including a 15 percent APR cap on credit card interest rates.
The national average credit card APR as of May 8 was 17.73 percent, according to the CreditCards.com Weekly Credit Card Interest Rate Report.
In a Facebook video the pair broadcast to talk about the so-called “Loan Shark Prevention Act,” Sanders said, “We are proposing that no bank have credit card interest rates over 15 percent.” These financial institutions actually borrow money from the Federal Reserve at 2.5 percent and then lend it out at much higher rates.
Proposal faces tough financial services lobby opposition
Sanders noted that those who have no money in the bank and are living paycheck to paycheck are forced to borrow money to tide over an emergency situation.
“You have Wall Street charging people outrageously high interest rates when they need money,” he noted. Every major religion condemns this sort of usurious lending, he added.
Ocasio-Cortez said predatory loans and high interest rates impact both rural and urban communities, and a credit card loan essentially becomes a payday loan.
“Today, we are telling Wall Street and payday lenders that enough is enough,” she said.
The two also touched on the prospects of getting this legislation enacted, given the powerful financial services lobby that would be working against them.
“It can be very challenging sometimes to find working partners,” Ocasio-Cortez acknowledged.
She advised that consumers should call their representatives, considering that they do respond to pressure.
Sanders added that “bad things happen in Congress” as politicians assume that people are not paying attention, asking people to phone and email their representatives.
Banks have gotten around previous usury laws
Although usury laws were essentially outlawed by 1980 in the U.S., banks got around this by changing their charters to states such as Delaware and South Dakota that did not have the lower interest rate caps.
Sanders said the proposed legislation would help combat usurious rates, and that individual states could also go lower on their caps than the proposed 15 percent.
According to an Intercept news report, the Sanders and Ocasio-Cortez proposal would allow the Federal Reserve Board to increase this 15 percent cap rate in case of unusual circumstances that pose a threat to the “safety and soundness” of the financial system.
The two representatives also point to postal banking as a way to provide more banking options to Americans.
Ocasio-Cortez tweeted, “Big banks won’t service poor communities unless they make a killing off them – that’s why they charge predatory rates. That’s why we pair usury w/ support for a nonprofit banking option esp in key communities: aka Postal Banking.”
It remains to be seen how any potential interest-rate cap could affect lending practices and consumer spending.