Cap Credit Cards at 16%

[Joanne98]

The American financial system is in dire straits, from top to bottom. The House in May passed legislation to curb the worst abuses of credit card companies, and just this month we created a new consumer protection agency to rein in Wall St. firms.

But we need to go further. I am proud to have introduced H.R. 4300, the Restoring America's Commitment to Consumers Act, which will bring relief to Americans locked into debt by unreasonably high credit card rates. H.R. 4300 would cap annual credit card interest rates at 16%, far below the oppressive rates of 25 or even 30% that many card issuers impose. This is an issue that I care deeply about, and I have worked to bring reforms to the credit card industry for many years.

Rep Louise Slaughter's diary :: :: For more than three decades, all but the wealthiest Americans have seen their wages stagnate while education, health, and energy costs continue to grow at a rate well above inflation. To maintain the middle-class lifestyle they deserve, many hard working Americans have turned to credit cards to finance a greater and greater share of their expenses.
As the personal debt of Americans has risen, so too have interest rates on that debt. Many sign up for cards with much lower rates, only to see their rates hiked with the flimsiest of excuses. Even those who pay off their balance every month can have their rates raised. High credit card interest rates trap Americans in a vicious cycle; a single late payment can lead to skyrocketing rates, which make balances and future payments out of reach.

Out of control interest rates hurt all Americans, not just those with high rate cards. As more and more of Americans earnings go into the financial industry, less and less go to buy goods and services whose production employs most Americans. It also limits our ability to stimulate a slowing economy, since millions of credit card holders use tax rebates to pay down their personal debt rather than act as consumers.

Our bill will cap annual credit card interest rates at 16%, and include in this calculated rate the fees that many issuers use to hide the true cost of their cards. This cap will bring immediate relief to those who are struggling to make ends meet while burdened by the weight of credit card debt. We of course also have a provision in there to grandfather lower interest card holders so that card companies don’t react to the law by immediately raising everyone’s rate up to 16 percent. Now we need the Senate to step up and match our legislation, as we continue to build support for it here in the House.

The last thing Americans suffering from job losses and declining wages need is to worry about being trapped under a growing mountain of debt. It is time we acted to protect them.

For the latest updates, you can always visit http://www.louise.house.gov. If you're interested in my take on the Senate, I recently wrote about the Senate obstacle course at Politico.

http://www.dailykos.com/storyonly/2009/12/18/815782/-Cap-Credit-Cards-at-16

[chandler2]

1. 16% seems excessive, even usurious

Wouldn't it be more fair for cr card interest rates to be maybe a point or two higher than the average interest rate paid
by banks on savings accounts?

[dmallind]

2. Either would be OK, as long as you want the results.

The results would be that anyone whose actuarial risk of default would make a lower interest rate than whatever cap you want into a losing bet would never have access to credit cards.

Might not be a bad thing, and would actually reflect the early history of credit cards when only the well to do with stable job histories and impeccable credit scores without so much as a single late payment could get one. But you can't have it both ways. Cap interest rates sure - but then no more whining if the "little guy" can't get access to credit and needs to resort to truly usurious payday loans. No more worrying about special perks for the rich and powerful if you have made it so that only they are worth the risk.

Consider what credit cards are. An open wallet with thousands of dollars of somebody else's money in it lying around for you to use, with only your word that you will pay it back (credit cards are unsecured loans). And by the way if you pay it all back in 1-2 months it's free. You only put a bit more back in (again only on your word) if it takes you more than a month or two. How much would you want to set that payback at if it were YOUR wallet, and to whom would you extend this privilege?

Credit card companies are certainly guilty of many things. Excessive charges for late or over limits. Changing terms willy nilly. Yes even excessive interest rates. But the excessive rates apply only to customers with high risk. I'm still paying 10% or so and less with promotions (or rather I am NOT paying that as I pay off before interest accrues, but that's the rate I would pay). When you get a 79% rate, it's because the company knows you won't get credit anywhere else because you are a high risk. If you're not you simply DO get credit anywhere else and tell them to stuff it, obviously.

[eilen]

3. The road to easy credit is fraught with peril

When I was growing up, my mother never had a credit card. She purchased furniture on time with the local store and everything else on layaway or used with cash. We had little money. However, it was difficult to spend money we didn't have as we could not source it. We made do. I don't recall having healthcare insurance (dental or vision either). If we had healthcare expenses, we made arrangements. It seemed to keep costs like that down. I notice after credit got very easy, they did away with layaway and personal business time purchase arrangements.

My father had credit cards but was very careful in the use of them. He would let me take his Macy's Dept. Store card to shop for school clothes when I was a teenager and I was always careful to keep my total below $100. Now that is less than half of what the girls in my son's high school spend on a pocketbook.

People just did not go into $5,000-$15,000 debt in credit cards then. Credit limits were tight.

I think credit had become too loose and people were encouraged to continue to make more debt by advertisers, government and banks.

So people are waking up and deciding that spending OPM like drunken sailors was wrong. Changing the rules back to reasonable interest rates are an incentive to tighten the credit card lending.

How is that a bad thing?

[skepticscott]

5. A lot of the unhappiness

that people have with credit card issuers seems to stem from a feeling of entitlement to spend money that they don't really have. If you don't use a credit card to buy things that you don't have the money for to begin with, but only as a cash flow management tool or as a convenience, to avoid having to lug big wads of cash around (and even for that, you can use a debit card), then most of the gripes people have about excessive interest rates and fees would go away.

[dmallind]

6. As I said, might be a good idea IF we can deal with the ramifications

People are used to having access to all these things now. The undeniable convenience of credit in general and cards in particular is integrated in almost all levels of society, including those at high risk of default. Taking something away is harder than not having it in the first place, and I guarantee you DU would be up in arms about "redlining" and "shutting off options" for the "regular folks" if it took a 750 credit rating to get a card at all. It would be seen as racist and classist as doubtless minorities and the working class would be hit hardest. The people who had credit but can no longer find it will be looking for someone to blame, and it won't be themselves for not mainitaining perfect credit scores. It will be the evil corporations and corrupt politicians who took away their financial flexibility.

Also, in a 70%+ consumer spending economy we would be looking at a ripple effect that would be perhaps temprary but quite significant as the stream of credit-funded spending screeches to a halt. When the dust settles spending levels will be more sustainable and we will see fewer defaults ongoing, but it would be pretty hellish for a while.

In 10 years time would we look back and say "good idea"? Probably. But painless it surely would not be.

[skepticscott]

4. What do you base that on?

Have you calculated that such an interest rate would allow the issuers of credit cards to cover the base expenses of providing the service, to cover their losses when people default on their bills, and to cover the costs of unauthorized charges from stolen cards or numbers (which by law the cardholder is not responsible for, above a small amount), and to make a reasonable profit? Or are you just making up what seems "fair" out of thin air and outrage?

[flamin lib]

7. Yes, we need a National Usury rate based on the fed rate plus some

% to cover costs and a modest profit.

History of credit cards here:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x1367396

[Hestia]

8. I've been thinking about this - how hard would it be start a kiva.org type

of lending in this country as a brick and mortar "bank" or even just a website? (If you want to get around the banks, you can't call it a "bank". Is this correct)

Lend small amounts (less than $1,500), set up very realistic repayment terms, a flat low rate interest (daily APR <.03). Set up consumer classes, have a savings account set up at the time of the loan, etc. I know this is what the credit unions are suppose to do, but even they seem to want you to borrow thousands, when what you really need is less NOW (think of a new transmission for the car, etc.)

Isn't what the Dime Savings Banks were all about, before they went under during the S&L theft of taxpayer money?

Since the banking laws cross state banks, wouldn't it be easy to set up this type of "thrift"? Am I naive in thinking this? It wouldn't take billions to set up, would it? Would it have to be regulate by the state/fed banking laws if you go outside those laws, but run it as a real entity that actually helps people instead of making them slaves to a loan?

[tomm2thumbs]

9. Let Walmart get into the financial industry like it wanted - I want to see the banks FREAK

I'm willing to risk it being a good thing - heck, let Target, Costco etc... all get in the business. I thought they LOVED capitalist competition

[yurbud]

10. kick--wish I saw it soon enough to rec