Democratic presidential candidate Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez (DN.Y.) on Thursday announced a plan to introduce legislation that would cap interest rates on consumer loans, including including credit cards and payday loans at 15%. Their initiative sets up what could be a tug-of-war with the banking and financial services industries, which last year grossed more than $ 113 billion in credit card fees and interest charged to consumers at average rates. far exceeding the proposed ceiling.
“Today’s loan sharks wear expensive suits and work on Wall Street, where they earn hundreds of millions of dollars in total compensation by charging exorbitant fees and usurious interest rates,” argued Sanders and Ocasio- Cortez in a statement released ahead of their announcement. .
The couple also criticized banks for charging an average interest rate on credit card balances above 17%, while they borrow money from the Federal Reserve at just 2.5%. Lawmakers’ so-called Lending Shark Prevention Act would allow individual states to set their own credit card interest limits even lower and impose penalties on companies in breach.
In a live-streamed press conference Thursday, Sanders and Ocasio-Cortez noted that Congress imposed a 15% interest rate cap on credit unions in 1980, and that credit unions were l ” one of the few financial players who did not need a bailout after the 2008 financial crisis. (The federal regulator of credit unions raised the interest rate cap to 18 percent in 1987, where it still stands today.)
“There is no reason for a person to pay more than 15% interest in the United States. This is common sense – in fact, we had these usury laws until the 1970s, ”wrote Rep Ocasio-Cortez. on Twitter. “It’s a debt trap for workers [and] it has to stop.
There is no reason for a person to pay more than 15% interest in the United States.
This is common sense – in fact, we had these usury laws until the 1970s.
(Maximum interest rates are also record high for people with great credit.)
This is a debt trap for workers + it must stop. https://t.co/tYf4J892KQ
– Alexandria Ocasio-Cortez (@AOC) May 9, 2019
If passed, the bill would force a significant reduction in current credit card interest rates; the average maximum rate charged by card companies is currently nearly 25 percent, while the overall average is approaching 18 percent. It would also force a total transformation of the payday loan industry, which provides small emergency loans at exorbitant rates: the average interest rate for these loans is almost 400 percent. The federal financial industry watchdog, the Consumer Financial Protection Bureau, recently canceled Obama-era restrictions on payday lenders.
The bill is unlikely to become law anytime soon, especially given the Republican control of the Senate and the White House. But Ocasio-Cortez ended the press conference on an upbeat note by suggesting their bill could move the political needle on both sides of the aisle.
“What I like about big, ambitious ideas, whether it’s this one or the Green New Deal, is that they force Republicans to change their agenda,” Ocasio-Cortez boasted. , highlighting the strong climate legislation she sponsored and crediting her for pushing a majority in the Senate. Chief Mitch McConnell at acknowledge the existence of man-made climate change last month. “Now we’re going to get Republicans to say publicly that the sky-high interest rates are bogus and that we need to do something about it.”