Proposal to Cap Interest Rates May Fail, but it Has Merit
Fed up with the exorbitant and soaring interest rates that credit card companies charge consumers, there is a push underway to cap the maximum interest rate that credit card providers can charge consumers. Although the likelihood of getting the law passed seems slim (at least for now), the issue still highlights the abusive policies of many credit card companies and major banks.
How Banks Get Away With Charging High Interest
The evils of charging excess interest on the borrowing of money are so ingrained in our culture that many religions warn of the immorality and the wrongs of charging usurious interest.
Florida does have usury laws, capping maximum interest rates at 18% for loans up to $500,000. How then is it possible that your credit card interest rate sometimes approaches 30%?
Credit cards circumvent these usury laws in two major ways. The first way is by inserting provisions in credit card agreements that say the agreement is governed by laws of a state other than Florida. As you may have guessed, the companies usually choose states that have much higher (or no) usury maximums at all.
The other way Florida’s usury laws are circumvented is by the fact that many credit cards are backed by national banks–for example, you may have a visa card that has Chase Bank on it. National banks are regulated by the federal government. Federal law effectively has no usury rates, and states are not allowed to impose one where federal law says otherwise.
Bill to Cap Interest is Introduced
This is where the proposed law change comes in. Presidential candidate Bernie Sanders and Representative Ocasio-Cortez have come out in favor of passing laws that cap all credit card interest rates at 15%. If the law were to pass, it would set a federal usury law, which even federal banks would have to abide by. The law also would allow states to pass limits that are lower than 15%.
Credit card companies argue that higher interest rates are needed, because their loans are completely unsecured by any property, and are dischargeable in bankruptcy. Others have concern that a cap in interest rates could make it harder for those with poor credit to obtain credit cards.
Debate is One Worth Having
Whether or not the law passes, one thing the proposed law will do is start a debate about how we treat people with poor credit. Extending credit at exorbitantly high interest rates just so that we can give people who are not able to pay the loans back some type of credit is nothing more than extending subprime loans–the exact type of scheme that toppled the housing markets.
Additionally, one reason why people file for bankruptcy is the never ending cycle of interest and fees that make it impossible for many people to pay back what they have borrowed. Lowering interest rates could compel more people to repay debts, rather than discharge them in bankruptcy.
If you are being harassed by debt collectors or have been charged unfairly by a creditor, the Miami consumer rights attorneys at Jacobs Legal can help you in enforcing your rights.