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Sanders, Ocasio-Cortez want to cap credit card interest rates at 15 percent

The card rates have been reaching record levels as the Fed raised key rates and the industry prepares for the next recession.

The 15 percent cap on credit card interest rates would be the same as the one Congress imposed on credit unions in 1980, said Sen. Bernie Sanders (I-Vt.). (Vernon Bryant/AP)

Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez will introduce legislation on Thursday to cap credit card interest rates at 15 percent, a steep reduction from current levels.

Sanders (I), the Vermont senator running for the Democratic nomination for president, told The Washington Post in an interview that a decade after taxpayers bailed out big banks, the industry is taking advantage of the public by charging exorbitant rates. “Wall Street today makes tens of billions from people at outrageous interest rates,” he said.

Ocasio-Cortez (D-N.Y.) will introduce the House version of the bill. “There is no reason a person should pay more than 15% interest in the United States,” she said on Twitter. “It’s a debt trap for working people + it has to end.”

Americans have more than $1 trillion in credit card debt, according to the Federal Reserve.

In addition to a 15 percent federal cap on interest rates for credit cards and other consumer loans, states could establish their own lower limits under the legislation. It would also allow the U.S. Postal Service to get into the banking business, including offering savings and checking accounts.

The proposal is sure to meet stiff resistance from the banking industry, which brought in $113 billion in interest and fees from credit cards last year, up 35 percent since 2012, according to S&P Global Market Intelligence.

The 15 percent cap would be the same as the one Congress imposed on credit unions in 1980, Sanders said. (The National Credit Union Administration, the industry’s regulator, raised that cap to 18 percent in 1987 and has repeatedly renewed it at that higher level.)

“This specific proposal will only harm consumers by restricting access to credit for those who need it the most and driving them toward less regulated, more costly alternatives,” Jeff Sigmund, a spokesman for the American Bankers Association, said in a statement.

Richard Hunt, chief executive of the Consumer Bankers Association, another industry group that includes JPMorgan Chase and Bank of America, called the 15 percent cap “arbitrary.” “One-size-fits-all caps would make all loans . . . harder for Americans with lower credit scores or non-traditional sources of income to receive,” he said in a statement.

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The legislation also has little chance of passing the Senate, where Republicans hold the majority.

“I am sure it will be criticized,” Sanders said of the legislation. “I have a radical idea: Maybe Congress should stand up for ordinary people.”

The proposal may not get through Congress now, but that calculus could change if Democrats gain control of the Senate in 2020, Jaret Seiberg, an analyst with Cowen’s Washington Research Group, said in a research note. “The progressive attack is organized and there are multiple paths for them to achieve victory. It is why we believe this is a risk that is worth monitoring,” he said.

Credit card rates have recently reached a record high, according to, which has been tracking the data since 2007 and compiles data from 100 popular cards. The median interest rate was 21.36 percent last week, compared with 20.24 percent about a year ago and 12.62 percent about a decade ago, according to the website.

Rates have been rising fastest for those with the lowest credit scores, said Ted Rossman, an industry analyst for “Issuers are taking an opportunity to charge people with lesser credit a bit more,” he said.

For borrowers with high credit scores, the average rate was 17.73 percent last week, compared with 16.71 percent a year ago. For those with poor credit scores, the average is now about 24.99 percent, compared with 23.77 percent a year ago.

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The difference in the increase is about 20 basis points higher for customers with a low credit score. A basis point is a common way to measure changes in percentages.

“It may not sound like that much, but that is just in one year,” Rossman said. And even small increases in rates can be crippling to a cash-strapped borrower, he said. “It is the ultimate slap in the face when you’re already down.”

Those with low credit scores pose the greatest risks to credit card companies, which are being more cautious as they prepare for the next recession, said R.K. Hammer, who has consulted with the credit card industry for 30 years. Some companies have started closing inactive accounts or lowering credit limits for low credit score customers, Hammer said.

“Last time was ugly,” said Hammer, referring to the global financial crisis. “It is not surprising to me that a prudent bank would take prudent action to prepare.”