Seven prominent financial organizations, representing a broad spectrum of banks and credit unions, have voiced opposition to a legislative proposal put forth by Senators Bernie Sanders (D-Vt.) and Josh Hawley (R-Mo.). The proposed bill seeks to impose an annual percentage rate (APR) cap of 10 percent on credit cards. The groups argue that this measure would significantly limit consumer access to credit.
In their letter, the financial entities warn that the proposal could harm those it intends to protect. They state: “Many consumers who currently rely on credit cards would be forced to turn elsewhere for short-term financing needs, including pawn shops, auto title lenders, or worse – such as loan sharks, unregulated online lenders, and the black market.”
The letter further discusses research indicating that rate caps can negatively impact consumers' financial health and broader economic conditions. It notes: “Other research demonstrates that when consumers lose access to credit, they often reduce spending on essentials such as healthcare, education, and food, and are more likely to fall behind on bill, mortgage, and rent payments. Lack of a credit card would also likely reduce their consumption of items like furniture and clothing which not only negatively affects consumers but also negatively affects the broader economy.”
The financial institutions underscore their commitment to aiding consumers while expressing concern over the potential consequences of the legislation. They assert: “As responsible and well-regulated financial institutions, we share the goals of reducing the cost of consumer credit and increasing financial inclusion. Unfortunately, the 10 percent rate cap proposed in this legislation would stifle our shared financial inclusion goals, reduce access to credit, and push consumers to far more costly and less regulated lenders.”
The Bank Policy Institute represents these organizations in matters related to public policy and regulatory analysis within the U.S., focusing on issues such as cybersecurity.