How Trump's proposed cap on credit card rates could reshape consumer lending

The Supreme Court created this mess in 1978 - Marquette v First of Omaha. They decided that usury laws only apply from the bank's home state. This was then reinforced by Congress in 1980. Before that, many states had their own usury laws. In fact, state usury laws are still on the books. My state, NY, lists 16% as civil usury and 25% as criminal usury - with several variations based on type or total debt of loan.

I would love to see Congress actually do something that would help consumers instead of big banks and pass a federal usury law for unsecured debt - perhaps 16%. This would give the banks enough headroom to have a range of rates based on risk and still protect consumers.

The percentages are unreasonable but capping may cause a credit issue.

In regards to ThatRobGuy's post (referenced this way rather than quote the same thing; credit card companies and others have traditionally turned to fees for steady revenue. It's a practice so old that variations were, IIRC, used in the late Medieval period to get around the Church prohibition against usury. So if a credit card company, through shear chance, had every one of their customers pay off their balance every month, they could turn to fees to at least keep going. Some IIRC, charge both fees and interest.

They might not base all their interest rates on risk, but risk is definitely a factor. They might not be able to "skip out" on debt but they can declare bankruptcy. That, BTW, isn't the universal panacea some think it is, but it still makes it difficult or outright impossible to recover debt. It's incredibly easy to run up a large credit card debt before you know it, whether it's for an emergency or not keeping up with spending. Have experienced the former and have seen people get in deep with the latter. And, as we all know (or I hope we all know), credit cards make for very expensive loans.

What credit card companies seem to want is for people to keep at least some balance. "Earn money back," or incentives to use them for household expenses, the better to run up a balance you can't clear in a month. They're not going to pay back more interest than they earn, so if you don't pay it off every month, it's not any help.

At best, the goal should be to pay off the debt and then pay off future credit card debt every month. Low interest would be welcome, and if interest were capped and I had a credit card debt, I'd try to take advantage of the cap and pay it off. Given human nature, that's not likely to happen, particularly if a credit card is almost maxed out.

Trump floats an idea that's obviously attractive to many Americans with large credit card balances. However, this is the administration that has gutted the Consumer Financial Protection Bureau (CFPB).....

"The Trump Administration has rolled back rules intended to lower credit card late fees, ended routine supervision of the biggest banks in the world, and greenlit a mega-merger between Capital One and Discover, creating the largest subprime credit card issuer on the planet. "


"Since its creation, the CFPB has returned more than $21 billion back to the pockets of working people and has issued rules that protect workers from predatory financial institutions. By shuttering the CFPB, the Trump-Vance administration would eliminate the only independent agency that ensures consumers are protected in the financial marketplace."

Seems desperate.

wing2000 said:

Consumer Financial Protection Bureau (CFPB)

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This agency doesn't affect interest rate charges, does it? I can see late fees happening because of the high monthly interest rate.

Laodicean60 said:

This agency doesn't affect interest rate charges, does it? I can see late fees happening because of the high monthly interest rate.

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AFAIK, the CFPB has not restricted interest rates...nor would they (or Trump) have the power to do so. Congress would need to pass legislation. In any case, my broader point is Trump has killed other CFPB initiatives that have favored consumers.

Curiously, Donald Trump recently picked up the phone and called Sen. Elizabeth Warren (aka "Pocahontas") after she criticized him on Monday for "not doing more to help working families, lower housing costs and cap credit card interest rates."

After the phone call with Trump, Warren noted:

“I told him that Congress can pass legislation to cap credit card rates if he will actually fight for it,” she said. “I also urged him to get House Republicans to pass the bipartisan ROAD to Housing Act, which passed the Senate with unanimous support and would build more housing and lower costs.”

wing2000 said:

AFAIK, the CFPB has not restricted interest rates...nor would they (or Trump) have the power to do so. Congress would need to pass legislation. In any case, my broader point is Trump has killed other CFPB initiatives that have favored consumers.

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I think the late fees help, but these rising balances are a symptom of the disease of slow real wage growth.