Capping Interest Rates at 15 Percent (Rep. Maurice Hinchey)

In an effort to provide direct financial relief to tens of millions of American families, I have introduced legislation today that would cap interest rates on credit cards and all other loans at 15 percent. The Interest Rate Reduction Act would rein in the skyrocketing rates that banks and financial institutions are charging customers with little or no warning and without any justification.  Sens. Bernie Sanders (I-Vt.) and Richard Durbin (D-Ill.) authored the bill and are sponsoring it in the Senate.

For years, the credit card industry has taken advantage of hardworking Americans by finding any little excuse or reason to dramatically increase their rates, which only serves to drive those people further into debt and make them more dependent on the credit card industry. The abuse exhibited by credit card and other lenders is a major reason for the economic hardships being felt in households all across America.  A fair and healthy lending system is critical to the success of hardworking Americans and the recovery of the economy.  This bill helps limit credit card and general lending abuse by placing a reasonable cap on the rates that can be charged to Americans. An interest rate cap gives the American people a legitimate chance to climb out of debt, enables lenders to still make a comfortable profit, and promotes long-term sustainable lending and borrowing practices.

The legislation I’ve proposed would impose a 15 percent interest rate cap on all loans at financial institutions. The bill would also impose a reasonable cap on lending fees, which have risen dramatically over the past decade.  Importantly, the Federal Reserve could allow higher interest rates, but only under special circumstances when it determines that the 15 percent cap would threaten the safety and soundness of lenders and if money market interest rates have risen over the prior six months.

These are the same rules that currently apply to credit unions, which have been forbidden from charging usurious interest rates on credit cards and other loans to their members for nearly 30 years. The interest rate cap has protected consumers at credit unions from being charged usurious interest rates, has not harmed the safety and soundness of these institutions; and has not negatively impacted the access to credit of credit union members. Furthermore, credit unions have been able to stay afloat throughout the credit crisis and have not received one dime of taxpayer assistance.