Amid Soaring Credit Card Rates, a Bipartisan Bill Proposes a 10% Cap
Amidst a surge in credit card interest rates and rising delinquencies, a bill with bipartisan support has emerged, aiming to cap rates at 10% for five years. This move seeks to dramatically lower the average credit card rate, which currently stands at 21.5%.
The Bill’s Origins and Rationale
The legislation, introduced by Senators Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.), draws inspiration from President Donald Trump’s campaign pledge to cap card rates at "around 10%" to provide relief to working Americans. The senators aim to hold the president accountable for his promise.
Industry Concerns and Predictions
Industry experts predict a challenging path forward for the bill. Despite the bipartisan support, bank industry leaders express strong opposition, arguing that the measure could hinder consumers. They warn that a 10% cap could lead to the denial of credit cards for millions of consumers, particularly those with lower incomes or limited credit histories.
The Impact on Risky Borrowers
Credit card companies extend credit to consumers with shaky credit at higher interest rates to protect against potential losses. If rates were capped at 10%, industry observers fear that card companies would stop issuing cards to high-risk customers, leaving them without access to credit.
Potential Alternatives and Consequences
With credit cards potentially off the table for certain borrowers, they may turn to riskier forms of credit, such as "buy now, pay later" schemes or payday loans. These alternatives often lead to unsustainable debt burdens for financially fragile consumers.
Historical Precedents and Arguments
Critics of the industry’s opposition point to similar arguments made against the Credit Card Accountability, Responsibility and Disclosure Act of 2009. However, subsequent analysis revealed that the law saved consumers money and expanded access to credit.
The Possibility of Compromise
While a 10% cap may prove unrealistic, industry observers acknowledge the need for reasonable rate regulation. They suggest considering a higher cap, such as 18% for commercial cards, similar to the limit imposed on federal credit unions.
Balancing Risks and Benefits
The bill poses a balancing act between protecting consumers from predatory interest rates and ensuring access to credit, particularly for those with lower credit scores. Industry experts emphasize that credit cards remain riskier financial products and carry a corresponding cost.
Conclusion
The bipartisan bill to cap credit card interest rates at 10% faces significant challenges, but it highlights growing concerns over surging rates and their potential consequences. While industry leaders predict resistance, advocates argue for measures to curb predatory practices and protect financially vulnerable consumers. The debate likely seeds broader discussions on regulating credit card rates and finding a balance that protects both consumers and the industry.
