04.08.22

Whitehouse, Reed, Warren, Sanders, Merkley Introduce Bill to Shield Americans from Sky-High Credit Card Rates

Legislation would allow states to cap consumer loan interest rates for their residents

Washington, DC – U.S. Senators Sheldon Whitehouse (D-RI), Jack Reed (D-RI), Elizabeth Warren (D-MA), Bernie Sanders (I-VT), and Jeff Merkley (D-OR) have introduced legislation to protect Americans from sky-high interest rates for credit cards and other consumer loans. The Empowering States’ Rights to Protect Consumers Act would restore states’ ability to limit consumer loan interest rates for their residents and help address the over $850 billion that Americans hold in credit card debt.

“Rhode Islanders are feeling a big hit to their wallets from corporate profiteering and inflation, driving some to take on credit card debt to lighten the burden,” said Senator Whitehouse. “This bill will empower individual states like Rhode Island to rein in runaway credit card rates and protect their citizens from Wall Street greed.”

“States should have the power to protect their citizens, but in this case, federal courts have prevented states with strong consumer protection laws from fully enforcing them. This bill would restore the ability of states to protect citizens from abusive interest rates,” said Senator Reed.

“Giant banks and predatory lenders have exploited loophole after loophole to saddle families with outrageous interest rates and fees,” said Senator Warren. “I'm glad to be re-introducing this legislation to restore states’ abilities to protect their citizens from sky-high interest rates that threaten consumers’ pocketbooks and financial futures.”

“Up until the Marquette Supreme Court decision, about half of the states in the country had usury laws on the books capping interest rates on credit cards and other consumer loans,” said Senator Sanders. “It’s time to undo the disastrous Marquette decision and put an end to payday lenders, big banks, and credit card companies pushing sky-high fees and outrageous interest rates at the expense of working people.”

“Predatory loans with outrageous interest rates suck working families into an inescapable vortex of debt,” said Senator Merkley. “In Oregon, we took on the payday lenders and limited the outrageous interest they were charging. This bill empowers states with strong consumer protection laws, like Oregon, to actually protect consumers. This bill’s simple, straightforward approach will ensure families aren’t bankrupted by high interest rates.”

Since the founding of our country, each state had the ability to enforce usury laws against any lender doing business with its citizens. That changed with the Supreme Court’s 1978 decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, which ruled that a national bank is bound only by the lending laws of the state in which the bank is based. This rendered states powerless to impose lending restrictions against lenders headquartered in other states. This decision effectively ended usury protections in the United States, as credit card companies located in states with weak or non-existent consumer lending protections. Without these protections, many consumers get stuck with double-digit interest rates.

The senators’ bill, S.4072, would amend the Truth in Lending Act of 1968 to clarify that consumer lenders — regardless of their location or legal structure — must abide by the interest rate limits of the states in which their customers reside. For example, Rhode Island had strong state-level interest-rate protections for many years, but they have been whittled down after the Marquette decision. The Empowering States’ Rights to Protect Consumers Act would bolster Rhode Island’s ability to protect its citizens from usurious loans.

“As a Rhode Island-based nonprofit provider of both financial coaching and small personal loans, we have seen firsthand the impact of high-interest credit on families,” said Capital Good Fund’s Founder and CEO, Andy Posner. “The COVID-19 pandemic has once again highlighted how crucial it is that consumers be protected from unfair practices. Senator Whitehouse’s legislation will ensure that states have the tools to do so, which is why we are supportive of this of the Empowering States’ Rights to Protect Consumers Act.”

"Restoring order to interstate lending is paramount for consumers living on the margins. This bill reignites the validity of state rate caps and hopefully allows more Americans to evade the debt traps payday lenders have set,” said Elyse Hicks of Americans for Financial Reform. “This is a step in the right direction to a uniform rate cap system that would eliminate this issue altogether."

The legislation is also endorsed by the Consumer Federation of America.

Credit card balances increased by $52 billion to $860 billion in the last three months of 2021, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit. That was the largest recorded quarterly increase in 22 year history of this data.

The full text of the bill can be found here.

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