Last week, the American Financial Services Association (AFSA), alongside other associations, expressed opposition to Amendment 2239 to Senate Bill 1582 through a letter addressed to U.S. Senate leadership. The amendment proposes an all-in annual percentage rate (APR) cap of 10% for credit cards, which the AFSA argues could have unintended negative effects on consumers.
The association points out that government-imposed price controls on credit cards, such as APR caps, tend to reduce access to credit, particularly affecting high-risk borrowers. A 10% APR cap would make it more challenging for millions of consumers to obtain credit cards, potentially driving them toward alternative and often more expensive sources of credit like payday lenders and pawn shops.
Credit cards are seen as a vital tool for consumers who are "credit invisible" to build a credit history and enhance financial inclusion. More individuals are utilizing credit cards to improve their credit scores, with institutions making strides in making credit accessible even for subprime borrowers.
Issuers have developed underwriting methods aimed at helping consumers manage debt and enhance their credit standing. These innovations have contributed to fewer delinquencies and reduced credit card balances in recent years. Such efforts align with consumer protections under laws like the Truth in Lending Act and the Fair Credit Reporting Act, ensuring transparency and responsibility from credit card companies.
While rate caps might appear straightforward solutions, they can disrupt credit markets by reducing competition and ultimately harming consumers. The proposed 10% APR cap under Amendment 2239 is seen as likely to limit access to affordable credit for many consumers while pushing them toward more costly alternatives.
AFSA advocates for policies that promote sustainable access to affordable and inclusive credit. They urge Senate leaders from both parties to reconsider this amendment in favor of measures that support true financial inclusion.
May 30th, 2025