Bernie Sanders and Alexandria Ocasio-Cortez will reportedly introduce new legislation today capping credit card and consumer loan interest rates at 15 percent and also set penalties for companies that violate the law “including a forfeiture of all interest on the illegal loans,” according to the Intercept.
The proposed cap would be six percent lower than the current median interest rate of 21.36 percent, according to the Washington Post, though it’s three percent higher than the median interest was just a decade ago. For those with poor credit scores, the average rate is 24.99 percent, meaning this legislation would dramatically change the interest they pay.
To put this in perspective, a consumer with $500 on a credit card that has a $15 or 2 percent minimum payment and an APR of 24.99 percent would pay $362 just in interest over the course of paying that off, if they only made the minimum payments. If that APR was lowered to 15 percent, they would pay $150. (I used this calculator to determine this, because I’m a blogger, not a... math... lady.)
Scamming and squeezing and abusing poor people with financial products is big business in America. The payday loan industry makes billions a year on short-term loans; some of those are no longer called payday loans, but Diane Standaert, director of state policy at the Center for Responsible Lending, told Bloomberg they’re “the same predatory lending schemes in a different package.” In 2016, Pew found the payday loan recipient spends “an average of $520 in fees to repeatedly borrow $375,” and that the average interest rate was 391 percent.
Sanders and Ocasio-Cortez’ bill would “effectively eliminate the payday loan industry,” according to the Intercept.
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The Trump administration has been gleefully helping these vipers. Just this week, the Consumer Financial Protection Bureau, which has been gutted under Trump, proposed a rule that would give debt collectors “the go-ahead to send consumers unlimited amounts of texts and emails,” the Post reported. The bureau has also proposed rolling back rules restricting payday lenders.
But it’s not just Republicans who seek to help these predatory lenders—far from it. Obama Treasury Secretary Tim Geithner’s private equity firm owns a predatory lending firm that would mail checks to poor people, hoping they would cash them without reading the fine-print that revealed high interest rates, meaning he directly profits from the misery of poor Americans.
In 2017, Mark Warner proposed a bill that would have allowed “payday lenders to ignore state interest rate caps on consumer loans as long as they partnered with a national bank,” according to HuffPost. Warner’s office told HuffPost that this bill was actually about protecting “access” to credit for consumers with poor credit scores, which is exactly what the payday loan industry says about their predatory products.
Commercial banks gave a total of $11.9 million directly to Democrats in the last election cycle, according to the Center for Responsive Politics, and spent $66 million on lobbying just last year.
This is all to say that the impact of financial oppression of poor and middle income Americans is vast, and that having prominent Democrats propose real legislation to ameliorate that, instead of actively supporting it, is a big deal.
A much better way to ensure those consumers have access to credit, instead of saddling them with absurd interest rates that they could never afford and trapping them in a cycle of debt, is postal banking. This would allow post offices to allow some financial services, like checking accounts and small loans. And as the Intercept reported, Ocasio-Cortez “plans to suggest postal banking as a public option for consumer lending.” Sanders also endorsed postal banking in 2015, and Kirsten Gillibrand and Elizabeth Warren support the idea, too.
But good luck getting Democrats like Mark Warner, D-The Financial Industry, to sign up for that.