Several leading financial groups, including the Consumer Bankers Association (CBA), voiced their opposition this week to a bill introduced in the U.S. Senate that would cap credit card interest rates.
The bill in question is the Capping Credit Card Interest Rates Act (S. 2760), proposed by Sen. Josh Hawley (R-MO). Hawley’s bill proposes an annual percentage rate (APR) cap for credit cards at 18 percent. The groups said this would restrict the availability of this type of credit for millions of consumers across this nation:
“Including annual fees and other fees in the calculation will cause credit cards to exceed the cap, resulting in the elimination or reduction of valuable credit card features like cash back and other rewards. This cap will also impede innovative credit cards with non-credit features designed to attract underserved groups because even a nominal annual fee could result in an all-in rate that exceeds the cap,” the groups wrote in a letter to Hawley.
While proponents of the legislation believe a cap on credit card fees and interest would benefit consumers, the groups said that many cardholders would ultimately be forced to meet their short-term financing needs from payday lenders and other venues outside the regulated banking system.
“One in nine Missourians already uses payday loans, almost double the national average, and payday lenders in Missouri charge annual interest rates of more than 300 percent. This bill would eliminate access to credit cards for millions of consumers and direct them to sources of credit which are far more costly and less regulated,” they continued.
The groups noted that credit cards are among the most well-regulated products available to consumers — and cheaper and more accessible than in the past. They added that the impact of this bill will be compounded by the Consumer Financial protection Bureau’s (CFPB’s) upcoming rule to reduce credit card late fees to $8.
“Credit card customers are already facing higher prices and reduced access to credit due to the CFPB’s misguided interventions in the market: the CFPB estimates that its proposal to reduce the safe harbor for credit card late fees will cause APRs to increase by about 2 percent. This would push millions more credit card accounts over the legislation’s 18 percent cap, eliminating a critical source of credit for everyday consumers,” the groups continued.
The groups concluded by reiterating a shared commitment to reducing consumer debt while simultaneously protecting access.
“This goal can be achieved without creating barriers for accessing safe and affordable credit products by pushing consumers with troubled credit histories and those on the financial fringe outside of highly regulated financial products to far more costly and less regulated lenders,” they wrote.
Along with the CBA, the letter was signed by the Bank Policy Institute, National Association of Federally-Insured Credit Unions, Credit Union National Association, American Financial Services Association, American Bankers Association, Independent Community Bankers of America, and the Association of Military Banks.