Leading financial groups that represent banks and credit unions of all sizes, along with the payments and fintech industries, today sent a letter to Representatives Alexandria Ocasio-Cortez (D-N.Y.) and Anna Paulina Luna (R-Fla.) to oppose their proposed legislation that would create an annual percentage rate (APR) cap for credit cards at 10 percent.
This misguided legislation, which is accompanied by a Senate bill from Senators Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.), would severely restrict the availability of this type of credit for everyday consumers and effectively harm the very people the proposed legislation seeks to protect.
As outlined in the letter, research clearly shows that government price setting, including APR caps, hurts consumers:
“This bill would eliminate access to credit cards for millions of consumers and drive them to sources of credit which are far more costly and less regulated. Many consumers who currently rely on credit cards would be forced to turn elsewhere for short-term financing needs, including pawn shops, auto title lenders, or worse– such as loan sharks, unregulated online lenders, and the black market.”
The letter goes on to explain how credit cards are a primary vehicle for expanding financial inclusion:
“Credit cards bring more consumers into the well-regulated credit markets than ever before through underwriting innovations that offer credit to previously “credit invisible” consumers and deep subprime consumers […] These improvements in consumer financial resilience are partially due to actions banks have taken, such as higher minimum payment requirements, to ensure consumers make more progress paying down their balances.”
Finally, the letter highlights how interest rate caps hurt consumers and have disproportionate negative effects on high‐risk borrowers, the exact population they are intended to help:
“Other research demonstrates that when consumers lose access to credit, they often reduce spending on essentials such as healthcare, education, and food, and are more likely to fall behind on bill, mortgage, and rent payments. Lacking a credit card would also likely reduce their consumption of items like furniture and clothing which not only negatively affects consumers, but also negatively affects the broader economy.”