Whitehouse Introduces Amendment to Protect Consumers from High Credit Card Rates

Mr. WHITEHOUSE. Madam President, I rise to speak on an amendment that I intend to offer, cosponsored by Senators Durbin and Sanders, which would complement the Credit Card Act by restoring to each of the 50 States the power to enforce maximum interest rates against out-of-State lenders. I urge my Republican colleagues to attend to this as well because I know they have taken a particular interest over the years in the sovereign power of the State, what a constitutional scholar would call the Doctrine of Federalism, and this is certainly an important step in that direction.

The bill we are debating this week will make enormous advances in banning some of the most egregious credit card tricks and traps that consumers face out there. I commend the distinguished chairman for his heroic, patient, determined work in bringing us to this point. I believe we also need to give State governments the ability to go after the most dangerous trap of all:
outrageous and unjustifiable interest rates.

I have heard so many stories from countless Rhode Islanders: A missed payment or a late payment turned a reasonable interest rate into a 25-percent or 35-percent penalty rate, and a family suddenly finds itself in a hole it can't climb back out of.

Professor Ronald Mann of Columbia University has called this credit card business tactic the ``sweat box.'' Credit card companies have found it profitable to hit their most distressed customers with penalty rates and fees that are designed to sweat out of those customers the maximum monthly payments before the inevitable bankruptcy filing.

Prior to 1978, all the way back to the founding of the Republic, States had the ability to prohibit excessive interest rates and to protect their citizens. It is part of our national history. That changed following a U.S. Supreme Court decision in 1978: Marquette National Bank of Minneapolis v. First of Omaha Service Corp.

Marquette did not seem like a big case at the time--not a case that would, in practice, end one of the sovereign State's most basic and ancient authorities--to protect their citizens. In Marquette, the Supreme Court interpreted the word ``located''--one word--in the Civil War-era National Bank Act as giving regulatory authority over a loan to the States that was the primary place of business of the bank, as opposed to the State that was the location of domicile of the consumer. It seemed like a technical case, but the meaning of this one-century-old word defined that way has had the effect of crippling the ability of States to effectively police usurious lending practices by out-of-State banks.

Following Marquette, credit card lenders realized they could avoid State law consumer protections by reorganizing as national banks and operating their businesses out of a handful of States that either lacked meaningful interest rate restrictions or were willing to toss out their consumer protection laws in order to attract this new business. Thus began the proverbial race to the bottom. Today, it is unusual to find a credit card lender not based in one of the two or three States that have turned weak consumer protection into a profitable industry.

My amendment and the bill on which it is based, S. 255, would amend the Truth in Lending Act to legislatively reverse the Marquette decision, restore the historic power of the States, and to make clear that each State has the right to protect its citizens with interest rate restrictions on consumer lending no matter where the lender chooses to locate their physical office.
If enacted, Rhode Island, Connecticut, and other States could, once again, as they did for decades--for centuries before Marquette--say ``enough'' to faraway credit card lenders gouging their citizens. As a former State attorney general who was closely involved in consumer protection issues, I feel strongly that States have an important role to play in protecting their citizens from abusive and heavy-handed business practices. This amendment would acknowledge and strengthen that role.
Mr. DODD. Madam President, would the Senator yield for an observation?

Mr. WHITEHOUSE. I gladly yield to the distinguished chairman of the Banking Committee.

Mr. DODD. I thank the Senator for raising this issue, and I appreciate the time he has put into this and the effort he has expended for what he is trying to accomplish. I know his constituents and mine suffer, as all of us do, from abusive interest rates and fees and believe that broader interest rate reform is something we in the Senate should carefully consider. In fact, a good part of this legislation is designed to do exactly that.
The Senator's amendment goes beyond the credit card reform, however, and would affect many varieties of consumer lending beyond just credit cards. I, therefore, would inquire of the Senator from Rhode Island if he would be willing to withhold his amendment and defer consideration of the issue as we are preparing to take up broader financial regulatory reform later this year; in fact, within the next few months.

In the interim, I wish to assure the Senator from Rhode Island, Mr. Whitehouse, that he has my personal commitment that the Banking Committee, which I chair, will take a careful look at his proposal. We have held a major series of hearings on regulatory modernization, we are planning a number of others, and this subject will be an appropriate one for consideration in these hearings during the committee's consideration of related legislation. Perhaps the Senator from Rhode Island can recommend a witness or witnesses--I certainly know of several--who would like to testify, including himself or other Members who are cosponsors of his amendment, or like many of us who share his concern about the Marquette decision and what it has done in terms of usury laws.
I often point out that both in the Old Testament and the New Testament, while I don't claim to be a Biblical scholar, there was nothing that more outraged Jesus Christ than the money changers in the New Testament. Certainly, there are plenty of examples in the Old Testament of usurious lending practices. It is as old as Biblical times, the admonition regarding charging outrageous interest rates. We have rates today, as I have said before, that would make organized crime blush if they were to see them.

Anyway, the Senator has proposed a reform of our system of banking regulation with wide-reaching consequences, and the proposal deserves the full vetting of the Banking Committee. I assure him we will have a full vetting.
I ask my colleague and friend from Rhode Island whether he would be willing to entertain this proposal and defer this matter until we deal with a larger set of issues and to also confirm for him my similar concern that he has raised and would have raised with this amendment.

Mr. WHITEHOUSE. Madam President, I thank the chairman of the Banking Committee for his offer. With this understanding, I will agree to withhold on my amendment on this particular piece of legislation.

I believe we need to look at broader interest rate reform, and I appreciate the commitment of the distinguished Banking Committee chairman to look at the Marquette issue in that context. I also wish to applaud the chairman for developing the legislation we are debating. This is one of those areas where wisdom accrued over years of legislative experience allows us to expand the realm of the possible, and of course legislation is the art of the possible. Through his wisdom, through his experience, he has been able to get to the very outermost bounds of the possible on this legislation and perhaps even move those outermost bounds out a little bit. So I applaud the chairman for this extraordinary
accomplishment. The Credit Card Act will go a long way in cleaning up the practices of unscrupulous credit card lenders, and the Senators from Connecticut and Alabama deserve high praise for their hard work in bringing us to this point.

I thank both my colleagues and I yield the floor.