A Senate bill to cap the annual percentage rate for credit cards at 10% would have a devastating effect on access to credit for individuals and small business owners who use their personal cards as a form of liquidity, the American Bankers Association and 52 state bankers associations said in a letter to the bill’s sponsors.
The “10% Credit Card Interest Rate Cap Act” [S. 381] by Sens. Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) would force tens of millions of consumers who would no longer be able to access the credit card market to turn to less regulated alternatives including payday lenders, unregulated fintech lenders and pawn shops, according to the associations. In their letter, the groups said multiple studies have shown that government price controls raise costs rather than lowering them. They pointed to several examples in states and other countries where rate caps caused economic harm.
“Government intervention prescribing the terms of a highly popular unsecured credit product would likely restrict or eliminate altogether the availability of this type of short-term revolving line of credit for millions of Americans who depend on this resource,” they said.
The bill “would be a huge step backward for American households and the U.S. economy,” the associations said. “To protect affordable access to credit, we urge policymakers to rely on market forces, not politics, to determine interest rates.”
