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Senators Introduce Legislation Empowering States to Protect Consumers from Abusive Lending

Bill Would Restore State Role in Limiting Credit Card Interest Rates

Washington, DC – With public frustration growing over the unfair practices of big banks, U.S. Senator Sheldon Whitehouse (D-RI) introduced a bill today to protect consumers by restoring the ability of states to set limits on credit card and other consumer loan interest rates. The Empowering States’ Rights to Protect Consumers Act would amend the Truth in Lending Act of 1968 to clarify that all consumer lenders—regardless of their location or legal structure—must abide by the interest rate limits of the states in which their customers reside. The legislation has seven original cosponsors, including Sens. Carl Levin (D-MI), Richard J. Durbin (D-IL), Jack Reed (D-RI), Bernard Sanders (I-VT), Jeff Merkley (D-OR), Mark Begich (D-AK), and Al Franken (D-MN).

“It’s time to stop Wall Street banks and their credit card subsidiaries from taking advantage of struggling families in Rhode Island and across the nation,” said Whitehouse. “This legislation would restore historic, long-standing states’ rights to protect consumers from improperly high interest rates.”

The bill would restore a historic states’ right stripped away by a 1978 United States Supreme Court decision. Under current law, as interpreted by the Court in the case of Marquette National Bank of Minneapolis v. First of Omaha Service Corp., national banks are bound only by the lending laws of the state in which the bank or its credit card subsidiary is based, rendering states powerless to impose lending restrictions against a lender headquartered in a different state. This decision effectively ended usury protections in the United States, and gave large lenders an incentive to locate in states with weak or non-existent consumer lending protections.

“States should have the power to protect their constituents, but for too long, federal bank regulators have allowed some banks to victimize Michigan families and businesses using usurious interest rates well beyond what Michigan law allows,” said Levin. “It is time to restore the ability of Michigan and every other state to protect their citizens against abusive interest rates.”

“Today, more than a quarter of all credit card holders in this country are paying interest rates above 20 percent and as high as 59 percent,” said Sanders. “When credit card companies charge 25- or 30-percent interest rates they are not engaged in the business of ‘making credit available’ to their customers. They are involved in extortion and loan-sharking.”

“For more than thirty years, a flawed Supreme Court decision has blocked the 50 states from applying local law to local loans,” Merkley said. “The result has been predatory interest rates on credit cards that strip wealth from working families. I am proud to partner with Senator Whitehouse to put state cops back on the beat policing exorbitant credit card interest rates. This legislation will help diffuse the ticking time bomb of credit card debt that resides in the pockets of millions of Americans.”

“At a time when Alaskans and all Americans are watching their spending and doing what they can to make ends meet, the last thing we need is big banks making more money off of high-interest credit cards and other gimmicks,” Begich said. “We need to close some of these loopholes and level the playing field for the consumer.”

“The constant cycle of big banks taking advantage of consumers needs to end,” said Franken. “This bill would restore the ability of Minnesota and other states to limit unfair interest rates on credit cards and help protect consumers. It would take us one step closer to making certain that banks and credit card companies treat their customers fairly, and that’s why I will do what I can to get it passed.”

Whitehouse first introduced the Empowering States’ Rights to Protect Consumers Act in 2009, and offered it as an amendment with bipartisan support to the Wall Street Reform and Consumer Protection Act in 2010.

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