Sen. Sheldon Whitehouse, D-R.I., is spearheading a movement to pass the “Empowering States` Right to Protect Consumers Act,” legislation that would enable states to limit what credit card companies can charge customers for interest rates.
With the help of six other Senate Democrats who hail from across the country, including long-time advocate of fair debit card fees, Senate Majority Whip Dick Durbin (D-Ill.), Sens. Al Franken (D-Minn.), Bernie Sanders (I-Vt.), Jeff Merkley (D-Ore.), Mark Begich (D-Alaska), and Jack Reed (D-R.I.), Whitehouse aims to turn over a 30-year-plus old Supreme Court ruling that gives precedence to interest rates charged by nationally chartered banks over state laws regarding interest rates. According to Whitehouse, many banks have consequently converted to nationally chartered institutions because this allows them to charge their own interest rates across different states.
The Senators argue that charging customers unreasonable interest rates that range anywhere from 20% to as high as 59% is a form of extortion and would have been considered illegal under state laws in the past. “Today, in contrast, credit card companies routinely charge rates of 30 percent or more,” said Whitehouse on Tuesday.
The bill was first presented by Whitehouse in 2009 as an amendment to the Dodd-Frank Act. Caps on intercharge fees (fees paid by merchandisers to a customer`s bank) went into effect on October 1 and were also an important term of the 2010 Dodd-Frank financial reform law. These recent restrictions have significantly lowered intercharge fees by almost half of the previous industry average to 21 cents; thus, leaving banks scramblingto recover $8 billion in lost revenue.
While the bill would not set interest rates, it would give states the power to establish policies for interest rates in their jurisdictions, a task they had in the past. Ultimately the goal is to protect consumers from being swindled and to save them money.
In a press release Sen. Bernard Sanders, I-Vt. Said, “When credit card companies charge 25% or 30% interest rates, they are not engaged in the business of “making credit available” to their customers. They are involved in extortion and loan-sharking.”
Experts at Keefe, Bruyette & Woods equity firm in New York warned investors that Senators could have a hard time getting the bill passed because a 2010 attempt failed and because there are now an increased number of Republicans in Congress. On the other hand the recent success of intercharge fee limits may suggest otherwise.