By Pete Schroeder
WASHINGTON (Reuters) - A pair of leading liberal Democrats proposed legislation on Thursday that would cap interest rates on credit cards and other consumer loans at 15 percent to help consumers grappling with growing credit card debt.
The proposal by Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez also calls for the U.S. Postal Service to provide basic banking services as a way to provide new, affordable competition to traditional banks.
“There is no reason a person should pay more than 15% interest in the United States,” Ocasio-Cortez tweeted. “It’s a debt trap for working people + it has to end.”
Sanders is running for the Democratic Party's nomination for president, and Ocasio-Cortez has emerged as one of the most high-profile Democrats in Congress since winning her seat in 2018.
"It's expensive to be poor. If you've got nothing in the bank and living paycheck to paycheck, you've got to borrow money from a bank through the use of your credit cards," said Sanders, adding that no major bank should be able to employ interest rates that lead to "economic brutality" on America's poor, or usury.
"This is a moral issue. Every major religion on earth has condemned usury."
The bill would place significant restrictions on short-term loans, such as payday loans, that can rely on significantly higher interest rates, as well as cut into profits from traditional banks. The average interest rate on credit cards is currently 17.73 percent, according to an industry survey by CreditCards.com - the highest level since the site began tracking rates in 2007.
"Many people don't understand that there already is a credit card cap in America, it just doesn't apply to banks," said Matt Schulz, chief industry analyst at CompareCards.com.
"Credit union credit card (Annual Percentage Rate) can't go above 18 percent, which is roughly the average APR for a new bank credit card. There's no such restriction for banks, which completely dominate the credit card marketplace," Schulz added.
The bill would allow the Federal Reserve to temporarily permit higher borrowing rates if needed to help keep institutions afloat, but for no more than 18 months. It also would not prevent states from establishing lower maximum interest rates.
The measure marks the first time that Ocasio-Cortez has helped author a bill taking aim at the financial industry. The freshman Democrat from New York has a seat on the House of Representatives Financial Services Committee.
The bill is unlikely to become law with Republicans in control of the Senate and the White House, and expected intense opposition from the financial services industry. But it could present a potent campaign issue to Democrats jockeying for support in a crowded 2020 presidential nominating field.
With over 20 candidates competing for the party's nomination, many Democrats have seized on a populist, anti-Wall Street message that resonates with voters. Several high-profile candidates, like Senators Kamala Harris of California and Cory Booker of New Jersey, have pushed for policies that would curb the financial industry and provide better support to struggling borrowers.
Senator Elizabeth Warren, who is also seeking the Democratic nomination, largely built her political reputation on taking on Wall Street after the financial crisis and helping to build the Consumer Financial Protection Bureau.
(Corrects reference to analyst's organization from CreditCards.com to CompareCards.com in paragraph 8)