By John Q. Hosedrinker 
Despite unprecedented wealth and income inequality, the three wealthiest Americans have gained over $625 billion since Election Day, while the working class struggles. Wall Street firms now manage trillions, wielding significant influence over financial markets and consumer costs. In this context, proposed credit card interest rate caps aim to curb predatory lending practices that trap Americans in debt, offering a chance for substantial savings for working families.
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It’s becoming increasingly clear that the current credit card interest rates are spiraling out of control, and Senator Bernie Sanders’ proposal to cap them at 10% is gaining traction as a necessary intervention. Many are noticing that even with decent credit scores, newer cards come with interest rates higher than those obtained a decade ago with far less established credit. This trend suggests a system that is, frankly, getting out of hand, prompting a vital question: what is an acceptable rate if 10% is deemed too low?
The current reality for many is credit card interest rates soaring above 25%, and even with these exorbitant rates, access to credit remains a significant challenge for a large segment of the population. This raises a stark and logical question: should interest rates be allowed to climb to 50% or even 100% to ensure universal access to credit? Such a scenario is clearly absurd, highlighting the inherent flaw in arguments against capping rates at a reasonable level.
Historically, usury, the practice of charging excessive interest, has been recognized as a problem, and for good reason. While an argument can be made that 28% is undeniably too high, the counter-argument often falls into the trap of suggesting that individuals should simply avoid credit cards if they can’t manage the rates. However, this overlooks the fundamental reality that in our current society, a credit score is often a prerequisite for navigating basic aspects of life, from renting an apartment to securing essential services. This creates a situation of duress, where opting out of credit isn’t a viable option for many.
Further insight into this issue reveals that interest rates above approximately 18% were once illegal in most U.S. states. This was largely due to state usury laws. However, a pivotal Supreme Court ruling in 1978 shifted this landscape, allowing banks to circumvent local laws by setting rates based on their home state, which ultimately paved the way for the 20-30% Annual Percentage Rates (APRs) we witness today. This historical context underscores that the current high rates are not an immutable law of economics, but rather a consequence of policy decisions.
While the intention behind capping credit card interest rates at 10% is to curb predatory lending and protect consumers, some express concern that this could lead to a reduction in credit availability, particularly for individuals with less than perfect credit. The argument is that banks might become more hesitant to extend credit if they can’t charge higher rates to offset perceived risks. However, this perspective often overlooks the fact that the current system already restricts credit for many, and that the proposed cap is a response to rates that are already considered exploitative by a significant portion of the populace.
It’s interesting to note the differing reactions to similar proposals depending on the political figure making them. When Senator Sanders advocates for such measures, he is sometimes labeled a “communist.” Conversely, when former President Trump has touched on similar ideas, it has sometimes been met with more favorable reception from certain quarters. This suggests that the debate around consumer protection and financial regulation is often intertwined with partisan politics, rather than being solely a discussion about economic policy.
The idea of capping credit card interest rates is also being linked to broader discussions about debt relief, with some suggesting that a debt jubilee could provide further teeth to such measures. The core of the argument is that compound interest, particularly at the rates currently charged, has become a mechanism that can effectively enslave individuals, trapping them in cycles of debt.
For those with excellent credit, it’s still a struggle to find rates that feel reasonable. Many report having credit cards with interest rates in the high teens or even exceeding 20-25%, despite a history of responsible financial behavior. This raises the question of who truly benefits from the current system. Banks are undeniably making billions in profits, and it’s argued that they can afford to operate with slightly reduced interest rates.
A common counter-argument to capping interest rates is that it would lead to a significant reduction in credit card rewards programs. However, for many struggling with high interest payments, the loss of a few percentage points in rewards is a small price to pay for the ability to manage their debt more effectively. The core issue for many is not the rewards, but the overwhelming burden of interest payments.
Moreover, the experience of some individuals illustrates the predatory nature of the current system. Even when making timely payments and maintaining a good credit score, interest rates on credit cards can inexplicably rise, sometimes to nearly 30%. This suggests a deliberate strategy by credit card companies to maximize profits by leveraging the desperation of consumers for credit.
There’s also a perspective that the current system encourages a cycle where individuals are incentivized to carry balances, rather than pay them off in full, precisely because of the lucrative interest income for lenders. The fact that some credit card companies even proactively increase credit limits for individuals who are already struggling suggests a system designed to facilitate deeper debt, rather than responsible borrowing.
The argument that capping rates would eliminate credit for those with poor credit is a valid concern, but it often fails to acknowledge that the current system already severely limits credit for such individuals. The question then becomes whether it is more equitable to allow rates to skyrocket for everyone, or to implement a cap that might require a recalibration of how credit is extended, perhaps with a greater emphasis on secured loans or community-based lending models.
Ultimately, the push for a 10% cap on credit card interest rates stems from a deep-seated concern about fairness and economic justice. It’s a call to rein in practices that are seen as exploitative and to create a financial system that serves the needs of ordinary people, rather than solely the profit motives of large financial institutions. While the transition might involve challenges and require careful consideration of unintended consequences, the fundamental principle is that excessive interest rates are a form of economic harm that the government has a role in regulating.