U.S. Sens. Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA), Jeff Merkley (D-OR), and Jack Reed (D-RI) introduced legislation to curb high interest rates for credit cards and loans.
The Empowering States’ Rights to Protect Consumers Act would amend the Truth in Lending Act to clarify that consumer lenders — regardless of their location or legal structure—must abide by the interest rate limits of the states in which their customers reside.
“Right now, Wall Street banks and their credit card subsidiaries can saddle consumers with outrageous interest rates, contributing to a cycle of debt that is tough to break out of,” Whitehouse said. “This bill will restore the power of individual states to rein in abusive credit card rates.”
Previously, each state had the ability to enforce usury laws against any lender doing business with its citizens. That changed in 1978 when the Supreme Court in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation decided that a national bank is bound only by the lending laws of the state in which the bank is based. This rendered states powerless to impose lending restrictions against lenders headquartered in other states.
The legislation would allow states to re-instate a cap.
“Allowing a race to the bottom in state bank regulation is dangerous and puts every American consumer at risk. This bill ensures that states are able to stand up for their own consumers and enforce the strong consumer financial protections on their books,” Merkley said.
Credit card balances reached $944 billion in late 2018, an increase of about 4 percent over the previous year, according to NerdWallet. The average U.S. household has an estimated $6,929 in credit card balances carried from one month to the next.
“States should have the power to protect their citizens, but in this case, federal courts have prevented states with strong consumer protection laws from fully enforcing them,” Reed said. “This bill would restore the ability of states to protect citizens from abusive interest rates.”