Personal Finance News
Sanders, Ocasio-Cortez Suggest Interest Rate Cap on Credit Cards
A 2020 presidential hopeful and a popular Congressional freshman have announced that they’re teaming up to take on the credit card industry. Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez announced last week that they’ll be introducing legislation to cap credit card interest rates at 15%. Not surprisingly, as USA Today reports, the plan has been met with mixed reactions.
Discussing the proposal on a Facebook live stream with Ocasio-Cortez, Sanders stated, “Let’s be clear what we’re talking about: We’re talking about economic brutality. We are talking about some of the most powerful people in the world, people who make millions and millions of dollars a year, and banks that make billions of dollars a year in profit. And they see a real profit center in going after desperate people…who cannot afford the basic necessities of life.” Meanwhile Ocasio-Cortez said of the plan, “This isn’t anything radical, because we had these laws for a very long time. We had them in red states, we had them in blue states. We had them in half of the United States.” Yet she notes that banks can still “charge extortion level interest rates to the poor.” According to USA Today, the current average credit card interest rate is 17.71%, although individual rates can go much higher.
While the idea of limiting how much credit card issuers can charge in interest may sound attractive to consumers, there are those who worry that such a plan could bring about unintended consequences. For example some argue that such caps could make it harder for individuals with subpar credit to obtain loans. As WalletHub chief executive Odysseas Papadimitriou explained to Marketwatch, “No one benefits from this cap,” going on to say, “A lot of people would be shut out of credit cards as an option entirely.” In fact Papadimitrou theorizes, “Those people will then be forced to borrow from more expensive sources.”
Another concern some have raised is that, should a plan go into effect, credit card companies would simply look for other ways to profit from customers. This not only means scaling back on the rewards that many cards offer but also instilling new fees for various actions and privileges. Ted Rossman of CreditCards.com pointed to the airline industry as a blueprint for what card issuers could do, saying “Airlines are really good at nickel-and-diming passengers, too. When costs like employee salaries and gas prices rise, airlines look to make that up through bag fees, seat assignment fees, etc.”
Ultimately there’s no doubt that such legislation as the one Sanders and Ocasio-Cortez propose will face a difficult road to implementation. For one, while Democrats currently hold a majority in the House of Representatives, Republicans maintain control of the Senate — not the mention the White House. That said, with literally dozens of Democrats (including Sanders) looking to replace Donald Trump at 1600 Pennsylvania Avenue come January 2021, it’s always possible that a similar plan could become politically viable in the coming years. In the meantime expect a lot of debate about banking fees, interest rates, “the 1%,” and more as we head toward another big election year.
