December 6, 2011

Let’s have a straight deal for R.I. consumers of credit

With the holiday shopping season upon us, Rhode Islanders deserve to know that they are getting a straight deal from their credit-card company — that they will be able to buy that special gift for a child or loved one without being slammed by unfair interest rates. Unfortunately, right now, too many of the big banks and their credit-card subsidiaries are taking advantage of middle-class families through a loophole that allows them to ignore the laws of consumers’ home states and charge sky-high interest rates.

This is wrong. Let’s give folks the straight deal they deserve, and we can begin by restoring the power of Rhode Island and other states to limit excessive interest rates.

For nearly 200 years, states had the power to enforce laws to protect their citizens from outrageous interest rates, and from other unfair lending practices. Then, in 1978, a U.S. Supreme Court ruling stripped states of that right, letting banks move to the states with the weakest consumer-protection laws and “export” high interest rates to other states.

After this court case, a credit-card company could move to South Dakota, charge interest rates of 30 percent or more to consumers in Rhode Island or any other state — even if such interest rates would be illegal in the consumers’ home state — and fill your credit-card contract with tricks and traps to kick you up to that 30 percent interest rate.

Over and over, Rhode Islanders have told me how credit-card debt at outrageous interest rates has made it harder for them to get by in this economy. I’ve heard from Glee, a Woonsocket resident, whose credit-card company unexpectedly increased her interest rate to 24 percent — making a previously manageable debt nearly impossible to pay off. I’ve also heard from small business owners who sometimes depend on their credit cards to cover business expenses, and who struggle to keep up with 30 percent interest rates. The sky-high interest-rate payments that too often come can put a real strain on Rhode Islanders’ finances.

At a time when we should be helping small businesses grow to create jobs, crippling interest rates are the wrong way to go. We need to lift the burden of excessive interest rates and give power back to the states to set appropriate limits.

This month, I introduced legislation in the Senate to do just that. The Empowering States’ Rights to Protect Consumers Act, which has been co-sponsored by Sen. Jack Reed (D.-R.I.) and others, would restore to our 50 states the power they had since the founding of the republic, but lost in 1978, to protect their consumers with limits on excessive interest rates.

It would not require or recommend any specific interest-rate caps, nor would it impose any other lending limitations. It would simply restore states’ rights to ensure a fair rate for their citizens. Rhode Island for example, could re-institute the 18 percent cap that was in place before the U.S. Supreme Court changed the rules.

Americans are demanding an end to unfair practices and special deals for big banks and special interests. Passing legislation to close this loophole allowing unfair interest rates would be a good first step.

By: Sheldon Whitehouse