The Senate on Thursday took up legislation to address foreclosures and other problems related to what some have called the worst housing slump since the Great Depression. The bill could be approved by the Senate as early as this week after Senator Bernie Sanders and others offer amendments to improve the compromise measure. Sanders said he would propose a cap on interest rates that banks and credit card companies may charge. "Given the severe problems in the housing market and credit card interest rates which are as high as 30 percent, the time is long overdue for Congress to say enough is enough," Sanders said. "We must put a cap on the amount of interest that mortgage companies, banks and credit card companies can charge their customers, and I intend to introduce legislation to do just that."
The Sanders measure would outlaw interest charges of more than 14 percent if it were in force today. The adjustable cap would be pegged to the interest rate that the Internal Revenue Service charges late income tax filers, a rate that may fluctuate every three months.
Sanders' proposal is patterned on Republican-sponsored legislation that won overwhelming Senate approval in 1991, but never became law. At the time, then Senator Alfonse D'Amato sponsored the bill that drew strong bipartisan backing.
"The problem is even more severe today," Sanders said. A recent report found that one-third of all credit card holders in this country are paying interest rates above 20 percent and as high as 41 percent - more than double what they paid in interest in 1990. Between 1989 and 2006, Americans' overall credit card debt grew by 315 percent from $211 billion to $876 billion.
One-third of low- and middle-income families reported going into credit card debt to pay for rent, utilities, and food in 2006. That same year Americans charged $51 billion worth of fast food on their credit cards, a 29-fold increase since 2001. As a result, credit card companies raked in $90.1 billion in interest in 2006 alone.
Even worse, the Center for Responsible Lending found that some American consumers are paying interest rates for payday loans as high as 800 percent.
The home mortgage meltdown has aggravated the credit card crisis. "As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by," the Reuters news service recently reported. "Evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called pay day loans is growing as the U.S. housing crisis deepens, a negative sign for economic recovery." A recent front page story in USA Today drove home the link between home mortgages and credit card debts: "Even as the Federal Reserve has aggressively slashed short-term interest rates, banks are raising rates on credit cards."
The Federal Reserve has slashed key interest rates five times from a high of 5.25 percent down to 2.25 percent. Credit card interest rates should be going down, not up. Interest rates for payday loans should be going down, not up. Mortgage interest rates should be going down, not up.
Under current law, credit card companies are able to raise interest rates at any time for any reason. That's exactly what Bank of America did, according to a recent Businessweek article. "Bank of America sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28 percent, without giving an explanation for the increase. Fine print at the end of the letter advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. What's striking is how arbitrary the Bank of America rate increases appear, credit industry experts say."
The Sanders Amendment faces formidable opposition. In 2006, the top five credit card companies — JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC — made $8.5 million in congressional campaign contributions. They will be doing everything they can to defeat his amendment.
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