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Stop Wall Street From Taking Advantage of Struggling Families

Mr. WHITEHOUSE: Mr. President, I was here last week in this Chamber to discuss a variety of areas in which the American people are not getting a straight deal compared to special interests and folks who have a lot of power for themselves and their industries in Washington. In that speech I proposed a number of concrete steps we could take to help restore the balance of power in our Nation between ordinary Americans on the one hand and the giant corporations and special interests that give themselves special deals and privileges that the American people do not share on the other hand.

Today I am here to introduce legislation to take one of those steps; that is, to protect ordinary consumers from runaway interest rates on credit cards from Wall Street banks. This is something that has gone unchecked for far too long. In the last Congress we passed two pieces of banking legislation. We passed the Credit Card Act, which ended some of the worst tricks and traps hidden in credit card contracts, and we passed the Dodd-Frank Act, which restructured our system of financial regulation and created a new agency to protect consumers from hazardous mortgages and credit cards.

Regrettably, one particularly bad practice was not addressed in either of those two pieces of legislation: the runaway credit card interest rates with which families are too often burdened. I will add it is not just families. I went through Olneyville in Providence about 2 weeks ago and spoke to a small business owner who was having tough times. His bank had pulled his line of credit, so he was having to fund his business off his credit card, and they had bumped up his credit card rate to--you guessed it--30 percent.

The Empowering States' Right to Protect Consumers Act, which I am introducing today, would pick up where the Credit Card Act and Dodd-Frank left off by restoring to our 50 sovereign States the power which they have properly had through the vast bulk of the history of this Republic to protect their home State consumers with limits on credit card and other loan interest rates. This is not a new power to States. This is not a new principle or idea. This is the restoration of a historic States right which was just eliminated a few decades ago.

When you and I were growing up, a credit card offer with a 20-percent or 30-percent interest rate might be something to bring to the attention of law enforcement. Such interest rates were illegal under most State laws. Today, in contrast, credit card companies routinely charge rates of 30 percent or more. We may not know, going through our credit card agreement, that is where we are going to end up. They may have a teaser rate up front that is a lower rate. But make one of those mistakes in that 20-page-long contract that is full of tricks and traps, and, pow, there we are at 30 percent.

What happened between our childhood when a 30-percent interest rate was something to bring to the attention of law enforcement, and now, when ordinary families are bedeviled with 30 percent interest rates on their credit cards? Before 1978--which is for the first 202 years of the American Republic--each State had the ability to enforce usury laws, interest rate limits to protect their citizens. Our economy grew and flourished during those two centuries, and lenders profited while complying with the laws in effect where they operated.

Then came 1978 and a seemingly uneventful Supreme Court case. It was little noticed at the time. It was decided in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation. The Supreme Court had to decide what State's law to apply when the bank was domiciled in one State but the customer lived in a different State.

The Court looked at the word ``located'' in the National Bank Act of 1863, and it decided it meant the location of the bank and not the location of the customer. They did not get it right away, but it did not take long before some big banks spotted the opportunity. They could avoid interest rate restrictions by reorganizing as national banks and moving to States that had weak interest rate protections and comparatively weak consumer protections. The proverbial race to the bottom followed as a small handful of States eliminated interest rate caps and degraded consumer protection in order to attract lucrative credit card business and related tax revenue to their States.

That is why the credit card divisions of major banks are based in just a few States and why consumers in other States are often denied protection from outrageous interest rates and fees, even though those outrageous interest rates and fees are against the law of the consumer's home State.

My bill would reinstate the historic longstanding powers of States to set interest rate caps that protect their own citizens.

Let me be clear about what this bill would not do. It would not prescribe or recommend any interest rate caps nor would it impose any other lending limitations. It is pure States rights. It would restore to the States the power they enjoyed for over 200 years from the founding of the Republic: the power to say enough, the power to say that 30 percent or 50 percent or whatever the State deems appropriate should be the limit on interest charged to their people.

The current system is not only unfair to consumers, it is unfair to our local lenders and retailers who continue to be bound by the laws of the State in which they are located. This is a special privilege for big national banks that can move their offices to whatever State will give them the best deal in terms of lousy consumer protection and unlimited interest rates. A small local lender has to play by the rules of fair interest rates. Gigantic credit card companies can avoid having any rules at all.

We need to level the playing field to eliminate this unfair and lucrative advantage for Wall Street banks against our local credit unions and other small lenders.

When we pass this bill, States can dust off or reenact their usury statutes--most of which still limit interest rates to 18 percent or less--and once again begin protecting their consumers from excessive interest rates. This is the historic norm in our constitutional Republic. It is the 30-percent and over interest rates that are the recent anomaly that are the historic peculiarity. We should go back to the historic States rights norm, the way the Founding Fathers saw things under the doctrine of federalism and close this modern bureaucratic loophole that allows big Wall Street banks a special deal to gouge our constituents.

As I close, I thank Senators Levin, Durbin, Begich, Franken, Reed of Rhode Island--most significantly my senior Senator--Sanders, and Merkley for their cosponsorship of this bill. In the past, similar legislation has garnered bipartisan support. It did so as an amendment to Dodd-Frank, and I hope my Republican colleagues will consider giving this bill a close look and join with us. This is purely an issue of restoring the balance of power to the States and to the people of those States as voters--federalism, something I know many Republicans support in other contexts.

I ask all of my colleagues for their consideration and support.