Sanders and AOC Propose Capping Interest Rates on Credit Cards at 15 Percent
Senator Bernie Sanders (I-VT) and Congresswoman Alexandria Ocasio-Cortez (D-NY) have joined forces to propose legislation that would cap interest rates on credit cards at 15 percent and allow the U.S. Postal Service to offer financial services to the public.
In their announcement, Senator Sanders rebuked banks for making too much money from interest rates. “Credit card interest rates are outrageously high,” he said on Twitter. “With [Representative Ocasio-Cortez], we are introducing legislation to challenge the greed of Wall Street and protect consumers across America.”
Congresswoman Ocasio-Cortez expressed similar feelings on social media as well: “There is no reason a person should pay more than 15% interest in the United States … It’s a debt trap for working people [and] it has to end.”
This would not be the first time Congress has taken action on interest rates. In 1980, Congress imposed a 15 percent interest rate cap on credit cards from credit unions, which was subsequently raised to 18 percent in 1987.
According to Creditcards.com, interest rates on credit cards are at a record high. The median interest rate was 21.4 last week, compared to 12.6 percent nearly a decade ago. The rate someone pays, however, largely depends on their credit score. “For borrowers with high credit scores, the average rate was 17.7 percent last week…For those with poor credit scores, the average is now about 25.0 percent.” Moreover, the interest rates for those with poorer credit scores are rising more quickly than the rates of those with higher credit scores.
R.K. Hammer, a consultant for credit card companies, said this is taking place because those with lower credit scores pose a larger risk of non-payment. As a result, some credit card companies are responsibly raising rates or lowering credit limits for those with low credit scores.
The Democratic proposal would also authorize the U.S. Postal Service to offer financial services, including checking and savings accounts, low-interest loans, and check cashing. This is likely to be opposed by the White House.
Last December, the Treasury Department criticized postal banking. “Given the USPS’s narrow expertise and capital limitations, USPS should not pursue expanding into new sectors, such as postal banking, where the USPS does not have a demonstrated competency or comparative advantage, or where balance sheet risk would be added.”
The proposal by Senator Sanders and Congresswoman Ocasio-Cortez is unlikely to make it out of Congress this year, but will most likely reemerge during the 2020 elections at both the national, state, and local levels.