At a time when Americans are saddled with more credit-card debt and higher interest rates, a new bill is seeking to cap credit card annual percentage rates at 18%.<\/p>\n
Sen. Josh Hawley, a Republican from Missouri, this week unveiled the Capping Credit-Card Interest Rates Act, highlighting how APRs have been climbing.<\/p>\n
\u201cAmericans are being crushed under the weight of record credit card debt\u2014 and the biggest banks are just getting richer,\u201d Hawley said in a statement. \u201cCapping the maximum credit-card interest rate is fair, common-sense, and gives the working class a chance.\u201d<\/p>\n
Consumers with a credit-card balance faced an average 22.16% APR during the second quarter, up from 16.6% a year earlier, Federal Reserve figures show.\u00a0<\/p>\n
The Fed has jacked up its benchmark rate to fight inflation, but APRs \u2014 like so many other interest rates \u2014 hinge on the central bank\u2019s actions.<\/p>\n
The bill has a slim shot at passage even as credit-card debt rises, observers say. Americans now have $1 trillion in credit-card debt, up from $887 billion a year ago.<\/p>\n
Here\u2019s what to know about this bill:<\/p>\n
A patchwork of state-level usury laws, dictating the amount of interest rate that can be charged on a particular loan, already exist, which further complicates matters.<\/p>\n
For instance, some national banks may charge a higher credit-card rate, depending on where their headquarters and branches are based, according to the Office of the Comptroller of the Currency.<\/p>\n
In a research note Tuesday, TD Cowen analyst Jaret Seiberg said the odds are low that Congress will pass Hawley\u2019s bill, and said the senator is \u201cstaking out a populist position to energize voters.\u201d\u00a0<\/p>\n
\u201cA federal usury cap has been a nonstarter in the House. We do not see that changing,\u201d Seiberg wrote. (Hawley is running for re-election next year, along with many others in\u00a0 the Senate. The terms of more than 30 senators expire in January 2025.)<\/p>\n
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\n \u201c<\/span>In a research note, TD Cowen analyst Jaret Seiberg said the odds are low that Congress will pass Sen. Josh Hawley\u2019s credit-card bill.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n For over a decade, fights over usury caps focused on unsuccessful Democratic bids to extend a 36% interest-rate cap on loans for military family members to the general public, he noted.<\/p>\n \u201cThose efforts have gone nowhere over concerns about what it would mean for access to credit. It is difficult for us to see why a measure that sets the cap at half this level would now be politically feasible,\u201d Seiberg wrote.<\/p>\n In 2019, Sen. Bernie Sanders, an Independent from Vermont, and Rep. Alexandria Ocasio-Cortez, a Democrat from New York City, introduced the \u201cLoan Shark Prevention Act,\u201d a bill to cap credit-card rates at 15%.<\/p>\n That bill did not get far, but Hawley\u2019s bill comes at a time when other lawmakers are cracking down on consumer fees. <\/p>\n The Biden administration is targeting \u201cjunk fees,\u201d while the \u201cCredit Card Competition Act\u201d \u2014\u00a0 proposed by Illinois Sen. Dick Durbin, a Democrat \u2014 would take aim at credit-card fees and rework how credit-card payments are processed.<\/p>\n In an interview with Real Clear Politics, Hawley said his bill would put widely-used credit cards on an equal footing with the rates for credit-union cards.\u00a0<\/p>\n Federally-insured credit unions already have a cap<\/strong><\/p>\n In fact, credit-card APRs issued by federally-insured credit unions have not surpassed 18% for nearly four decades. The interest rate ceiling is set by the National Credit Union Administration, a federal agency. The rate cap has remained at 18% since 1987.<\/p>\n On Tuesday, however, members of the National Association of Federally-Insured Credit Unions, or NAFCU, a trade organization, raised worries about Hawley\u2019s proposal for an across-the-board rate cap.\u00a0<\/p>\n While well-intentioned, such a rate cap would tighten access to \u201csafe and affordable\u201d credit, said Greg Mesack, senior vice president of government affairs at NAFCU, and Jason Stverak, deputy chief advocacy officer for federal government affairs at the Credit Union National Association, a trade association for both state- and federally chartered credit unions.<\/p>\n <\/p>\n \n \u201c<\/span>Credit-card APRs issued by federally-insured credit unions have not surpassed 18% for nearly four decades.\u00a0\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n \u201cThis legislation would push people with marred credit histories and on the financial fringe to payday lenders, as well as discourage future innovation and new products. These raise significant concerns with the bill,\u201d Mesack and Steverak said in a joint statement.<\/p>\n In January, the NCUA board unanimously backed the 18% cap for another 18-month period. That extends the cap through Sept. 10, 2024.\u00a0<\/p>\n Ahead of the decision, NAFCU urged the federal agency\u2019s board members to establish a 21% cap. The higher ceiling would help the credit unions\u2019 operations and allow them to \u201cmore fully serve their communities,\u201d B. Dan Berger, the organization\u2019s president and CEO wrote.<\/p>\n Federally insured credit unions had $76.7 billion in outstanding credit-card debt on their balance sheets during the second quarter, up from nearly $70 billion a year earlier, according to NCUA statistics.\u00a0<\/p>\n It\u2019s a sliver of the $1 trillion in credit-card debt currently held by Americans.<\/p>\n Credit cards with capped APRs may sound more tempting than ever, said Matt Schulz, chief credit analyst at LendingTree. But expect to make some trade-offs and be aware of certain restrictions before taking out a credit union\u2019s credit card.<\/p>\n Many credit unions may have membership rules. For example, Navy Federal Credit Union membership includes current and retired members of the armed forces, their families and their household members, and Department of Defense personnel, among others.\u00a0<\/p>\n Membership at another large credit union, Pentagon Federal Credit Union, known as PenFed, is open to everyone, a spokesman said. Members have to open and maintain a savings account of at least $5 in order to access other PenFed products, he added.<\/p>\nSome credit unions have restrictions and tradeoffs\u00a0<\/strong><\/h4>\n