Joint Trades Opposition Letter to S. 381

Dear Senators Sanders and Hawley:

The undersigned trade associations, representing credit unions, community banks, and both large and small financial institutions that serve hundreds of millions of American consumers, are united in opposition to S. 381, the 10 Percent Credit Card Interest Rate Cap Act. By imposing government price controls on private products by creating an all-in annual percentage rate (APR) cap for credit cards at 10 percent, this legislation 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.

Research clearly shows that government price setting, even 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.1 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. One in nine Missourians already uses payday loans, almost double the national average. Payday lenders in Missouri charge annual interest rates of more than 300 percent.

When Illinois imposed an all-in rate cap, Federal Reserve Board research shows that the "cap decreased the number of loans to subprime borrowers by 38 percent." As the authors explained, "[l]egislators motivated by genuine public interest rationales might not recognize the harmful consequences of their actions for these higher-risk borrowers with few credit alternatives." Separately, Dartmouth researchers showed that a similar 36 percent all-in APR cap in Oregon was responsible for "harming, not helping, consumers on average." Ultimately, "restricting access caused deterioration in the overall financial condition of Oregon households." Importantly, this research was conducted on much higher interest rate caps than the 10 percent cap that this legislation would impose. The prime rate is also higher due to current monetary policy considerations. This indicates that the impacts of a 10 percent cap would be even more draconian and counterproductive than that of higher caps.

Download the letter to read the full text.