A bill introduced this week by Sens. Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) would cap credit card interest rates at 10 percent for five years.
Sanders and Hawley are both considered populists. Sanders cited President Donald Trump’s campaign support of enacting the 10 percent cap. “When large financial institutions charge over 25 percent interest on credit cards, they are not engaged in the business of making credit available,” Sanders said. “They are engaged in extortion and loan sharking. We cannot continue to allow big banks to make huge profits ripping off the American people.”
Sanders and Hawley criticized the compensation paid to top executives at the largest credit card companies while credit card interest rates remain relatively high. According to Forbes, the average credit card interest rate is 28.6 percent, despite banks being able to borrow money from the Federal Reserve at less than 4.5 percent. Credit card companies generated $130 billion in interest and fees in 2022.
Banking trade groups criticized the bill. American Bankers Association President and CEO Rob Nichols said capping credit card interest rates at 10 percent would make the CC market less competitive. “As history makes clear, this proposal would result in the loss of credit access for the very consumers who need it the most, forcing them to use less-regulated, more risky alternatives including payday lenders and loan sharks,” he said. “Congress has rejected these kinds of government price controls in the past, and we urge lawmakers to reject this misguided proposal.”
Consumer Bankers Association President and CEO Lindsey Johnson called the proposal “price setting,” which she deemed “political pandering that has, time and time again, proven to harm Americans. Research clearly shows that when politicians, rather than the free market, dictate prices, consumers ultimately pay the price through limited choices outside the well-regulated banking system.”