Rep. Alexandria Ocasio-Cortez of New York and Sen. Bernie Sanders of Vermont announced their first piece of joint legislation Thursday: a cap on consumer loans and credit card interest of 15% titled the Loan Shark Prevention Act. The act, if passed, would shutter most payday loan companies, notorious for their outrageous interest rates, which often approach Mafia-like levels. Some states allow payday loans with annual interest rates approaching 700%.
While their proposal has a reasonable chance of success in the Democratic House of Representatives, it faces certain death in the Republican-controlled Senate, where it most likely will be killed in committee. But, like other bills being passed by the House that don’t have a chance, this one would show voters what legislation is likely to come to fruition if Democrats win the Senate and the White House 18 months from now.
Sanders and Ocasio-Cortez said in a statement: “Today’s loan sharks wear expensive suits and work on Wall Street, where they make hundreds of millions of dollars in total compensation by charging sky-high fees and usurious interest rates.” It’s certain that Wall Street and the banks will hate this proposal and probably the bullseye remarks from these two members of Congress about the damage caused to economically precarious people by these financial practices.
Creditcards.com, which tracks 100 popular cards, says interest rates have reached a record high recently. Rates depend on a person’s credit score, but the median rate was 21.36 percent last week, compared with 20.24 percent a year ago and nearly half that 10 years ago.
The senator and representative announced their plan in a live-streamed discussion on Sanders’ Twitter account.
David Dayen, a veteran economics journalist, writes:
[The two-page bill] includes language that would prevent lenders from adding fees to “evade” the interest rate cap and sets penalties for violators, including a forfeiture of all interest on the illegal loans.
According to Ocasio-Cortez’s office, the freshman representative plans to suggest postal banking as a public option for consumer lending, though that is not in the legislation. A postal lending option would in theory minimize the impact on access to credit from the rate cap. Sanders endorsed postal banking during his 2016 presidential campaign.
The interest rate cap, often referred to as a usury cap in a reference to the biblical term, has been a mainstay of Sanders’s left-wing agenda. He introduced similar legislation as far back as 2009, when Congress was debating the CARD Act, which added some more modest protections for credit card holders. While the 2009 bill specifically focused on credit cards, by 2016 Sanders had added all consumer loans to the plan.
Postal banking would provide cheaper loan options for low-income Americans. The USPS would also be permitted to offer basic checking and savings accounts, debit cards, and check cashing.
“We must make sure that giant Wall Street financial institutions are not the only way Americans can gain access to banking services,” their plan states. “We can provide affordable banking options for millions of unbanked and underbanked Americans by allowing the more than 30,000 post offices in America to offer basic financial services.”