Banks jack rates . . . continued
In introducing his March 2009 interest cap bill, Sanders excoriated the banks for taking hundreds of billions of dollars in taxpayer bailouts, and then turning around and charging people 20% and 25% interest on their credit cards. Sanders said "gangsters [in] . . . three piece suits" were "destroying people's lives" with 25% and 30% credit card rates. (See Sanders Senate floor speech on the need for this loan interest cap on YouTube.) On May 12, 2009, Sanders again proposed the 15% interest cap, this time as an amendment (SA 1062) to the bill that would soon become the Credit Card Act.
In proposing the credit card rate cap amendment, Sanders asserted that one third of credit card users were being charged over 20% interest, with some credit cards charging interest rates as high as 41%. "When banks are charging 30 percent interest rates, they are not making credit available,” said Sanders, “They are engaged in loan-sharking.”(Quoted in Carl Hulse, "Senate Rejects Limit on Credit-Card Interest Rates", NY Times Politics blog 5/13/09.) Sanders' amendment was cosponsored by Senators Harkin, Leahy, Whitehouse, Durbin and Levin. (Congressional Record)
Unfortunately, the Democratically-controlled Senate defeated the Sanders credit card interest cap amendment on May13, with only 33 Senators voting for it. (See Carl Hulse, "Senate Rejects a 15% Ceiling on Credit Card Interest Rates", NY Times, 5/13/09.) Sixty Senators voted against the Sanders proposal, including 21 Democrats and all but two Senate Republicans. (Republican Senator Grassley of Iowa voted for the Sanders amendment. Republican Senator Voinovich of Ohio was among six Senators who did not vote on the measure.) (See U.S. Senate Roll Call, Vote Number 191, 5/13/09.)
"The banking industry, which had some heavyweight representatives monitoring the vote, warned that an interest rate limit could cause a sour reaction in the financial markets", reported the NY Times. ("Senate Rejects a 15% Ceiling on Credit Card Interest Rates") A sour reaction amongst the people apparently doesn't matter that much to most Senate Republicans or to many Democratic Senators.
An underlying component of the current financial crisis is the tremendous debt burden being carried by everyday Americans, used, in part, to compensate for falling wages for average Americans. The 2009 Economic Report of the President had to report that real wages in the U.S. (wages adjusted for inflation) were lower at the close of the Bush Administration than they were in the 1970s. (Economic Report of the President, 2009, p. 229.) Declining wages have been partly hidden by massive consumer borrowing, including credit card debt and mortgage refinancing. With income in the U.S. flowing increasingly to a small number of people at the top of the economic ladder, and wages for many Americans either flat or declining in real terms, credit card and other debt has increasingly been used to maintain a modest middle class standard of living in our country. But high interest rates, fees, and other charges on credit cards only worsened the problem, sucking more wealth from the American people into the banks that have been issuing the cards.
States have long exercised the right to impose limits on the interest rates lenders can charge, by adopting usury laws. But on December 18, 1978, in one of the early salvos of three decades of financial deregulation in our country, the U.S. Supreme Court issued its Marquette National Bank v. First of Omaha Service Corp. decision, overturning caps on credit card interest rates under consumers’ local state usury laws. The Court ruled instead that the law of the home state of the national bank issuing the credit card would apply, no matter what state the card user lived in.
The ruling opened the door to a handful of states attracting card-issuing banks to their states by allowing exorbitant interest rates on credit cards that could, under the Supreme Court ruling, now be issued to users throughout the country. (See PBS Frontline's "The Ascendancy of the Credit Card Industry.) Diane Ellis, writing in FDIC's Bank Trends would note, "The result [of the Marquette decision] was a substantial expansion in credit card availability, a reduction in average credit quality, and a secular increase in personal bankruptcies." ("The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate", March 1998)
A Congressionally imposed nationwide credit card interest rate limit, like that proposed by Senator Sanders, is long overdue to correct the Marquette mistake.
-- Rudy Perkins
