Vermont Sen. Bernie Sanders and New York Rep. Alexandria Ocasio-Cortez introduced a bill Thursday that would cap credit card interest rates at 15%, The Washington Post reports.
“There is no reason a person should pay more than 15% interest in the United States,” Ocasio-Cortez tweeted. “It’s a debt trap for working people + it has to end.”
According to the Federal Reserve, Americans hold a combined $1 trillion in credit card debt.
“Wall Street today makes tens of billions from people at outrageous interest rates,” Sanders told The Post.
The bill would cap interest rates, allow states to establish even lower limits, and allow the US Postal Service to offer savings and checking accounts.
“The proposal is sure to meet stiff resistance from the banking industry, which brought in $113 billion in interest and fees from credit cards last year, up 35 percent since 2012,” The Post reported.
Banks already complaining about bill:
“This specific proposal will only harm consumers by restricting access to credit for those who need it the most and driving them toward less regulated, more costly alternatives,” Jeff Sigmund, a spokesman for the American Bankers Association, said in a statement according to The Post.
Richard Hunt, who heads the Consumer Bankers Association, a group that includes Bank of America and JP Morgan Chase, complained that the cap was “arbitrary.”
“One-size-fits-all caps would make all loans . . . harder for Americans with lower credit scores or non-traditional sources of income to receive,” he said in a statement.
But experts say credit issuers are the ones taking advantage of people with lower incomes and lower credit scores.
“Issuers are taking an opportunity to charge people with lesser credit a bit more,” said CreditCards.com analyst Ted Rossman.
Borrowers with high credit scores have an average rate of 17.7% while those with low credit scores have an average rate of 24.99%.
“It may not sound like that much, but that is just in one year,” Rossman said. “It is the ultimate slap in the face when you’re already down.”
Credit card rates recently hit record high:
“The median interest rate was 21.36 percent last week, compared with 20.24 percent about a year ago and 12.62 percent about a decade ago,” The Post reported.
“Americans paid banks $113 billion in credit card interest in 2018, according to MagnifyMoney, up 12% from the $101 billion in interest paid in 2017, and up 49% over the last five years, as Fed rate increases have been passed on to consumers,” Yahoo Finance added.
AOC and Sanders said in a statement that credit card companies charging over 20% are “involved in extortion and loan sharking.”