Bernie Sanders and Alexandria Ocasio-Cortez will introduce legislation to create a national cap on interest rates for credit cards.
The Sanders-Ocasio-Cortez legislation would limit credit card annual percentage rates to 15%. Current credit card annual percentage interest rates typically range from the mid-teens to high 20s, depending on a person’s credit score.
“Every major religion on Earth … has condemned usury because it is really disgusting,” said Sanders, a Vermont independent senator who is also a leading candidate in the Democratic presidential primary. “What Alexandria and I are proposing in this legislation is not complicated … Bringing back the concept of usury laws, where banks cannot try to get blood out of a stone.”
Sanders does not sit on a committee with jurisdiction over banking laws, though Ocasio-Cortez, D-N.Y., the Democratic sponsor of the interest rate cap bill in the House of Representatives, sits on the Financial Services Committee.
“What happens when everyday banks start to charge higher and higher interest rates? Essentially your credit card becomes a payday loan,” said Ocasio-Cortez.
The duo wants to effectively undo a 1978 Supreme Court decision that allows national banks to export the loan rates they can charge in their home state to other states that have usury caps. The decision helped lead to the expansion of the credit card industry into its current form.
“Essentially what we are doing is going around that decision,” said Sanders.
Sanders and Ocasio-Cortez’s offices did not respond to requests for more detail as to how the legislation would work.
Brian Knight, a senior research fellow at the Mercatus Center, questioned whether an interest rate cap would cut off access to borrowers that banks and credit card companies view as riskier bets.
“Loans are like any other product, if you cap the price below the point where it makes sense for anyone to offer the product, they won’t offer the product,” said Knight. “If there’s another type of loan or investment that [banks] could make that will give them a higher rate of investment, they’ll put it there instead.”
Banks could extend the terms of loans in order to recoup lost interest revenue, or simply not loan to those with lower credit scores, Knight said.
If that were to happen, “You run into illegal sources of credit,” said Knight. “A lot of credit activity in this country was loan sharking, and the mob made a lot of its money on loan sharking.”
[Also read: Elizabeth Warren calls for free college, sweeping student loan forgiveness program]
