Vermont Senator Proposes to Cap Credit Card Interest Rates
Sen. Bernard Sanders (I-Vt.) announced on March 12th, 2009 that he is about to propose new legislation related to credit card interest rate pricing policies. The Vermont senator suggests setting caps on credit card interest rates that are often raised by banks to as much as 30%. In case you aren't aware, an interest rate cap is a provision that puts an upper limit on the interest rate that a credit card issuer can charge you.
Banks justify their sky-high credit card rates by claiming that they need to charge more interest to offset the risk of default losses they might incur from irresponsible borrowers taking out unsecured loans. However, elevated interest rates do not only hit customers with bad credit records. More people with good-to-excellent credit are expressing their concerns about being charged up to 25% interest on balances run on their credit card accounts, even if they have never made a single late payment.
Sanders is convinced that this questionable banking practice amounts to loan sharking and wants it stopped as soon as possible. In his opinion, it is utterly unjust and usurious to charge customers sky-high interest rates and outrageous fees at a time when most U.S. banks have received billions of their customers' tax money to bail them out. What he suggests is that interest rates on credit cards and loans should be capped at a more reasonable, but still high, 15%.
Interestingly, this is the same interest rate cap that was applied to credit union loans about 30 years ago when interest rates spiked during the Carter Administration. Perhaps due to this limit, credit unions still offer considerably cheaper lines of credit than most of the top U.S. banks and credit card companies.
Of course, Senator Sanders does not expect banks and financial institutions to be happy about the new legislation. On the contrary, just as credit card issuers opposed the new credit card rules implemented by the Federal Reserve Board; it's very likely that they will again be reluctant to comply with a rate cap.
Nevertheless, the senator says he is prepared to fight for some real relief on the outrageous interest rates and fees imposed on American consumers by credit card issuers. At a time when the United States is suffering through its biggest economic crisis since the Great Depression, predatory lending is the worst form of treachery against its people.
Until Senator Saunder's proposal to cap interest rates is approved and passed into law, you can protect yourself from extreme interest rate hikes on your credit card account in several ways. First, pay your account on time every month. Second, regularly check your mailbox for bank notification letters about changes in their APRs and fees. The law requires that such letters should be sent to cardholders not fewer than 30 days before the actual rate change takes place. Then, if you do not agree with your new APR, you can just pay off the card at the previous rate, cancel the account, and apply for a new credit card online or at your local bank.
Finally, do not hesitate to negotiate interest rates with your bank if faced with a steep rate rise. If you are a creditworthy customer, your bank will most likely consider leaving your APR as it was, or perhaps even lowering it.