Credit card rate cap sought
You know your industry is in trouble when federal officials compare it to ancient Babylon, both the birthplace of usury and the first society to legislate against such exorbitant interest rates.
On Wednesday, that is what U.S. Rep. Louise Slaughter, D-Fairport, did when she proposed a 16 percent cap on credit card interest rates.
Laws against usury have been in place since the Babylonian Empire more than 25 centuries ago and existed in the United States on the state level until 1978, when a Supreme Court ruling effectively eliminated them, Slaughter’s office said.
“That decision called on Congress to address the issue with new legislation, but Congress has not acted to do so,” her office said in a statement.
As a result, credit card companies can situate their offices in states with no interest limits, states such as Delaware and South Dakota.
Slaughter said she will help introduce the Renewing America’s Commitment to Consumers Act as soon as Congress returns from the Thanksgiving break. The bill would prevent large rate increases that consumers have been experiencing.
“A great way to help Americans would be to again put a reasonable cap on ridiculously high credit card interest rates,” Slaughter said. “Things were a lot better for the average person in this country when we had usury caps.”
The proposed law follows the enactment last April of the U.S. Credit Cardholders’ Bill of Rights, which dropped a limit on interest rates in exchange for the support of enough lawmakers to ensure its passage.
The new credit card law, which takes effect in early 2010, prohibits arbitrary interest rate increases and stops card issuers from increasing rates in the first year after an account is opened. But no limits on interest rates were legislated at the federal level.
Mark Zupan, dean of the William E. Simon Graduate School of Business Administration at the University of Rochester, said he prefers no legislative limits on interest.
“Competition is a much more effective means to driving down rates,” Zupan said Wednesday. “The (proposed) laws are well-intentioned” but could have the unintended consequence of causing credit card companies and banks to stop lending to higher-risk consumers.
Slaughter said she is working with two Massachusetts Democrats, Reps. John Tierney and Michael Capuano, on the legislation.
In addition to the 16 percent cap on rates, the bill would limit fees on late payments to $15 — much less than the $39 that many card issuers are now charging.
