Bipartisan credit card bill would cap APRs at 10 percent

Lawmakers are intent on having President Trump make good on his promise to push for a 10 percent cap on the annual percentage rates credit card issuers assess on outstanding balances. But groups representing card issuers are having nothing of it.

"During the campaign, President Trump pledged to cap credit card interest rates at 10 percent," Senator Bernie Sanders, I-Vt., said in introducing legislation jointly with Senator Josh Hawley, R-Mo.

"Working Americans are drowning in record credit card debt while the biggest credit card issuers get richer and richer by hiking their interest rates to the moon. It's not just wrong; it's exploitive. And it needs to end," Hawley insisted

The Sanders-Hawley legislation reflects a statement issued by the Trump campaign back in September. "President Trump has promised to cap interest rates at 10 percent to provide temporary and immediate relief for hardworking Americans who are struggling to make ends meet and cannot afford hefty interest payments on top of skyrocketing costs of mortgages, rent, groceries and gas," the campaign stated.

Earlier this month, Representatives Alexandria Ocasio-Cortez, D-N.Y., and Anna Paulina Luna, R-Fla., introduced an identical bill in the U.S. House.

The legislation, an amendment to the Truth-in-Lending Act, is being called the 10 Percent Interest Rate Cap Act. The Senate bill would sunset the 10 percent cap after five years. No sunset provision is included in the House version of the bill, however.

Help for struggling families

"At a time when families are struggling to make ends meet, we cannot allow big banks to shake down our communities," Representative Ocasio-Cortez said in a statement that also referenced President Trump's campaign promise.

"I'm proud to the be bipartisan co-lead to this legislation," Representative Luna added. "For too long, credit card companies have abused working class Americans with absurd interest rates, trapping them in an almost insurmountable amount of debt."

In a press release Ocasio-Cortez and Luna noted that banks borrow money at a federal funds rate of 4.25 percent, whereas credit card rates "have nearly doubled over the last decade to 23.8 percent."

A press release announcing the Sanders-Hawley bill cited a recent Forbes magazine report that put the average credit card rate at 28.6 percent.

In 2023, the average household with credit card debt owed over $21,000 on their cards, according to data cited by Sanders and Hawley. The delinquency rate on credit cards issued by commercial banks is roughly 3.23 percent, the two Senators stated.

Plenty of blowback

Groups representing credit card issuers recently issued a statement resoundingly opposing the legislation. The Electronic Transactions Association said it was opposed, too, asserting that the legislation "would do more harm than good by severely limiting access to credit."

The ETA also signed on to letters sent to lawmakers by a panoply of trade associations representing every type of lender, big and small.

"Research clearly shows that government price setting, even APR caps, hurts consumers," the letters asserted. It would "drive them to sources of credit which are far more costly and less regulated," the letters added, citing pawn shops and payday lenders as examples.

The letters pointed to research by the Federal Reserve indicating that when Illinois imposed an "all-in rate cap" of 36 percent on consumer loans under $40,000 the number of loans to subprime borrowers fell by 38 percent.

"Credit cards bring more consumers into the well-regulated credit markets than ever before through underwriting innovations that offer credit to previously credit 'invisible' consumers and deep subprime consumers," the groups insisted.

"As responsible and well-regulated financial institutions, we share the goals of reducing the cost of consumer credit and increasing financial inclusion. Unfortunately, the 10 percent rate cap proposed in this legislation would stifle our shared financial inclusion goals, reduce access to credit, and push consumers to far more costly and less regulated lenders," the letters concluded.

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