New legislation coming out of Washington would empower states to set limits on the amount of interest credit card companies could charge on their residents. That’s nothing new for health and auto insurers, but credit card companies rarely had to deal with state regulators capping their interest rates.
Seeing Congress try to cap card interest rates is nothing new. In May 2009, Sen. Bernie Sanders (I-Vt.) sponsored legislation that would have capped credit card interest rates at 15%. That legislation crashed and burned, drawing only 33 votes. That bill would have been part of the CARD Act, which passed in late 2009.
But Congress is nothing if not tenacious (or stubborn, if you’re the head of a credit card company). Sanders’ New England compatriot Sen. Sheldon Whitehouse (D-R.I.) introduced new legislation May 12 that would shift authority over credit card interest rates from the federal government to the states. As Whitehouse noted in a news conference, right now banks and credit card companies have the power to trump local statutes on what financial services companies can charge in terms of card interest rates.
"We need to correct the historical anomaly that has allowed credit card companies to escape state law interest rate limits," Whitehouse said. "Rhode Island and other states deserve the right to enforce interest rate limits and say enough to sky-high interest rates."
The Whitehouse legislation looks to close a loophole that was opened in 1978 when a Supreme Court case paved the way for banks to get around the regulations of individual states. Instead, banks and card issuers could operate under the rules of the state where their home offices were located. Bank-friendly South Dakota and Delaware quickly became the headquarters of some of the largest credit card companies in the world. Such states have no caps on credit card interest rates.
According to Whitehouse’s Web site, his amendment would close that “home state” loophole and make clear that credit card companies and other lenders — no matter where in the country they are located — must abide by the interest rate limits of the states in which customers reside.
Will the bill pass Congressional muster? Considering the tough, pro-credit card reform climate in Washington these days, don’t be surprised if it does.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.