Lawmakers on Capital Hill continue to look for ways to lower credit card interest rates and fees for consumers. Hundreds of proposals that would restrict credit card companies have been offered that will appeal to consumers, especially when finances are tight. Coming almost exclusively from liberal Democrats and so soon after the enactment of the CARD Act less than a year ago, the prospect of passing new legislation is questionable.
But one, bi-partisan, proposed regulatory bill has the support of financial experts. It would give states the right to impose interest rate caps on out-of-state companies who lend to their residents; in affect, closing a loophole created in 1978 by a ruling of the Supreme Court that the laws of a bank’s home state take precedence and govern transactions across state lines. Since that ruling, credit card issuers have set up shop in states like South Dakota and Deleware that have no interest rate cap and states with weak consumer protections, charging interest rates as high as 30 percent. In an attempt to keep costs down, the Ohio legislature set a maximum interest rate of 8% on loans under $100,000, but they have no power to enforce that cap on the majority of companies, which are based outside of the state.
“From our nation’s founding until about 30 years ago it was the job of the states to protect their citizens from usury,” said Sen. Brown, calling the ruling “the most harmful Supreme Court decision that most Americans have never heard of.”
“Right now, because of this loophole, the big corporations trump state governments,” said Senator Sheldon Whitehouse (D-Rhode Island), co-sponsor of the measure with Senator Thad Cochran (R-Mississippi) and Senator Sherrod Brown (D-Ohio).