Hawley gets pushback from banking groups for bill to cap credit card rates at 18%
Zachary Halaschak
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Several banking and finance groups have come out in opposition to legislation introduced by Sen. Josh Hawley (R-MO) to cap credit card interest rates at 18%.
The Consumer Bankers Association, the Bank Policy Institute, and the National Association of Federally-Insured Credit Unions were among the industry groups telling Hawley in a letter this week that the bill, which would cap annual percentage rates at 18%, “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.”
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“Proponents of a cap on credit card fees and interest believe that it would help consumers, especially subprime borrowers with less than perfect credit histories,” the letter reads. “In reality, many consumers who currently rely on credit cards would be forced to turn elsewhere for short-term financing needs, including pawn shops, or worse – loan sharks, unregulated online lenders, and the black market.”
The groups said that 1 in 9 Missourians already use payday loans, which can come with annual interest rates of more than 300%. They said the bill would result in consumers turning from credit cards to sources of credit that “are far more costly and less regulated.”
In addition to capping the APR that credit card companies can charge at 18%, Hawley’s legislation, first introduced earlier this month, would prevent credit card companies from introducing new fees in order to sidestep the cap and would penalize lenders that have APRs in excess of 18%.
The Washington Examiner reached out to Hawley’s office for comment about the letter and pushback but didn’t receive a response.
The legislation speaks to Hawley’s populist streak as Republicans have typically opposed such regulations. Democrats have introduced similar legislation, though. For instance, Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) introduced legislation a few years back to cap interest rates at 15%, an effort that failed.
The Hawley bill is also facing backlash from groups like the National Taxpayers Union. NTU President Pete Sepp told the Washington Examiner during an interview that opposition to the plan comes down to “economics 101.”
“Whether the product is gasoline or prescription drugs or consumer credit, it’s an iron law of economics that price caps create shortages or squeeze cost bubbles into other parts of the economy,” Sepp said. “And usually, the people on the receiving end of those problems are consumers in the middle class.”
Sepp said legislators should instead focus on some of the causes behind rising interest rates, one of which he said was the Fed being forced to hike because of too much government spending.
One consequence of the legislation would be a scarcity of credit cards, according to Sepp, who said that if credit card companies don’t have the resources, they are simply not going to offer the credit. He said under an 18% cap, only consumers with spotless credit scores would be able to access credit cards.
“That is something that no government rule can prevent a company from doing,” Sepp said. “If a government wants to make it impossible for a company to do business, the company will respond logically and simply stop offering its product or at least offer less of it.”
Hawley, though, has justified the legislation as a way to help people struggling under the weight of the higher interest rates and told RealClearPolitics that applying an 18% cap would be a “fair” and “commonsense” way to give “the working class a chance.”
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“Americans are being crushed under the weight of record credit card debt,” Hawley said.
Total U.S. consumer credit card debt went up following the end of the pandemic as households grappled with explosive inflation. Credit card debt was at an all-time high of $1.03 trillion in the second quarter of this year, according to the Federal Reserve Bank of New York.