Cap Credit Card Rates

"Do you favor a national cap on credit card interest rates?" we asked in our latest online poll. As of midday Tuesday, 1,241 answered yes and 41 said no. The result is not likely to be so lopsided in the Senate, where a vote could come, in the next day or so, on an amendment proposed by Senator Bernie Sanders.

"Do you favor a national cap on credit card interest rates?" we asked in our latest online poll. As of midday Tuesday, 1,241 answered yes and 41 said no. The result is not likely to be so lopsided in the Senate, where a vote could come, in the next day or so, on an amendment proposed by Senator Bernie Sanders.

The Senate Banking Committee chairman said on Tuesday that he senses a "growing appetite" for capping interest rates. According to Dow Jones, Sen. Christopher Dodd said "the overwhelming number of people I talk to would like to see some limitation."

The Sanders Amendment is cosponsored by Senators Dick Durbin, Patrick Leahy, Tom Harkin, Carl Levin, and Sheldon Whitehouse. It would set a national usury rate at 15 percent. Under their amendment, the Federal Reserve would have the authority to allow credit card lenders to charge higher rates, if the Fed determines that the 15 percent cap would threaten the safety and soundness of financial institutions.

Until 1978, about half of the states in the country had usury laws on the books capping credit card interest rates. While these state usury laws remain on the books in several states, they were effectively eradicated by a 1978 Supreme Court decision (Marquette National Bank vs. First of Omaha Service Corp) which concluded that national banks could charge whatever interest rate they wanted if they moved to a state without a usury law.

The amendment applies the same statutory interest rate cap on credit cards that Congress imposed on credit unions in 1980 as a result of an amendment to the Federal Credit Union Act that capped interest rates on credit union loans, including credit cards, at 15 percent.

The reasonable interest rate cap that Congress imposed on credit unions has protected consumers from being charged usurious interest rates; it has not harmed the safety and soundness of these institutions; and it has not negatively impacted the access to credit of credit union members. Credit union members with good credit scores are still able to receive credit cards and loans that they need at reasonable interest rates. Unlike banks, credit unions have not received hundreds of billions of dollars from the Troubled Asset Relief Program.

The Senate already has voted for a nationwide cap on interest rates. In 1991, the Senate voted 74 to 19 in favor of the D'Amato-Lieberman-Specter-Conrad amendment to cap credit card interest rates at 14 percent. Here is what former Senator D'Amato said about his amendment on the floor of the Senate in 1991: "Fourteen percent is certainly a reasonable rate of interest for banks to charge customers for credit card debt. It allows a comfortable profit margin but keeps banks in line so that interest rates rise and fall with the health of the economy."

To see the Sanders Amendment, click here.

To take the poll, click here.