Senator Bernie Sanders’ and Representative Alexandria Ocasio-Cortez’s Plan to Stop Big Banks and Payday Lenders from Ripping Off Americans
Today’s modern-day loan sharks are no longer lurking on street corners, threatening violence to collect their payments. Today’s loan sharks wear expensive suits and work on Wall Street, where they make hundreds of millions of dollars in total compensation by charging sky-high fees and usurious interest rates, and head financial institutions like JP Morgan Chase, Citigroup, Bank of America, and American Express.
If you get a credit card from a store like Macy’s, Kohl’s, or Lowe’s, interest rates are even higher. Stores like these are charging customers an average interest rate of more than 27 percent. And many of the stores rely on these high-interest-rate cards for more than a third of their revenue. Incredibly, Macy’s earned almost 40 percent of its revenue from these cards and Kohl’s recently made 35 percent of its total profit from high-interest-rate cards.
What this means is that if you buy a $500 refrigerator from Lowe’s or Home Depot on one of their credit cards, you will likely owe an additional $136 in interest.
While credit-card companies are ripping off the middle class, the CEOs of large financial institutions are making out like bandits.
Jamie Dimon, the CEO of JP Morgan Chase, is now worth $1.4 billion after his bank got a taxpayer bailout of more than $400 billion during the financial crisis.
The former CEO of American Express, Kenneth Chenault, pocketed $370 million in compensation after leading that credit-card giant for 17 years.
The American people are sick and tired of being ripped off by the same financial institutions that they bailed out ten years ago.
If we are going to create a financial system that works for all Americans, we have got to stop financial institutions from charging outrageous interest rates and fees.
At the same time, we must make sure that giant Wall Street financial institutions are not the only way Americans can gain access to banking services.
We can provide affordable banking options for millions of unbanked and underbanked Americans by allowing the more than 30,000 post offices in America to offer basic financial services.
CAP INTEREST RATES AT 15 PERCENT
At a time when the American people hold a record $1 trillion in credit-card debt and desperately need relief, we need to establish a national maximum interest rate of 15 percent on credit cards and other consumer loans.
In America today, millions of consumers are now paying credit card interest rates of 20, 25, even 30 percent. When credit-card companies charge over 20 percent interest on credit cards, they are not engaged in the business of making credit available — they are involved in extortion and loan sharking.
The Bible, and virtually every major religion on earth, has a term for this practice: it’s called usury. In The Divine Comedy, Dante reserved a special place in the Seventh Circle of Hell for people who charged usurious interest rates. Today we don’t need the hellfire, the pitchforks, or the rivers of boiling blood, but we do need a national usury law that caps interest rates on credit cards and consumer loans at 15 percent.
CONGRESS IMPOSED A 15 PERCENT INTEREST RATE CAP ON CREDIT UNIONS IN 1980
In 1980, Congress passed legislation requiring credit unions to cap interest rates on their loans, with some exceptions, at no more than 15 percent. And that law has worked very well.
Unlike big banks, credit unions are member-owned and democratically controlled cooperatives that exist to provide affordable banking services to their members. Unlike big banks, credit unions didn’t engage in risky behavior that caused the financial collapse. And, unlike big banks, credit unions did not receive a huge bailout from the taxpayers of this country.
Credit union members with good credit scores are able to receive the credit cards and the loans that they need at reasonable interest rates. Capping interest rates at 15 percent on the loans credit unions make was a good idea in 1980. It is time to extend this cap to every lender in America.
STRONG STATE INTEREST RATE CAPS ERADICATED IN 1978
Establishing a national usury law is not a radical concept. Up until 1978, about half of the states in the country had usury laws on the books capping interest rates on credit cards and other consumer loans. For example, in Alabama, the legal maximum rate of interest was 8 percent. In Alaska it was 10.5 percent. In Arizona it was 10 percent. In Idaho, it was 12 percent. In Kansas, it was 15 percent. In New Mexico it was 15 percent. And, in Vermont, the legal maximum rate of interest was 12 percent.
But, those state interest-rate caps were obliterated by a 1978 Supreme Court decision (Marquette National Bank v. First of Omaha Service Corp), which concluded that national banks could charge whatever interest rate they wanted if they moved to a state without a usury law. So most of these companies moved to South Dakota or Delaware with no interest rate caps, allowing them to charge people in Vermont or Kansas interest rates of 20 or 30 percent. That is unacceptable. Under this plan, the disastrous Marquette Supreme Court decision would be repealed.
IN 1991, THE SENATE VOTED 74–19 TO CAP CREDIT CARD INTEREST RATES AT 14 Percent.
In 1991, the Senate voted 74–19 in favor of the D’Amato-Lieberman-Specter-Conrad amendment to cap credit card interest rates at 14 percent.
Here is what former Senator D’Amato said about his amendment on the floor of the Senate in 1991:
“Fourteen percent is certainly a reasonable rate of interest for banks to charge customers for credit card debt. It allows a comfortable profit margin but keeps banks in line.”
ENDING PAYDAY LENDING SCAMS
There are 63 million adults in this country who are either unbanked or underbanked — disproportionately African American and Hispanic. These low-income Americans live in communities that do not have regular banking services and are forced to depend on predatory payday lenders and check-cashing outfits. Loans from payday lenders carry an average interest rate of 391 percent and can reach as high as 900 percent.
According to Pew, the average payday loan customer borrows $375 and pays $520 in fees, trapping low-income Americans in a vicious cycle of debt. That is unacceptable. We are going to end the greed of predatory lenders and provide affordable banking options for low-income communities.
EXPANDING AFFORDABLE BANKING OPTIONS THROUGH POSTAL BANKING
Americans desperately need and deserve access to banking services that do not rely on either payday lenders or Wall Street financial behemoths. Post offices exist in almost every community in our country. There are more than 31,000 retail post offices in this country. An important way to provide decent banking opportunities for low-income communities is to allow the U.S. Postal Service to engage in basic banking services.
This is not a radical idea. The vast majority of postal services around the world allow their customers to do some form of banking. There are 1.5 billion people worldwide who bank with postal services. The American people should have this option as well, just as they have in the past. From 1911 to 1966, the U.S. Postal Service offered banking services. In 1947, the Postal service had 4 million people utilizing its financial services.
We need a Postmaster General and a Postal Service Board of Governors who will work with the postal unions to allow post offices to offer affordable and basic banking services and we need to implement the Postal Service Protection Act that Sen. Sanders introduced in 2013.
The Postal Service already cashes Treasury checks and issues money orders. The USPS should fully exercise its existing statutory authority and implement pilot programs offering affordable financial services, including ATMs, paycheck cashing, bill payment and electronic money transfers in post offices.
Some of the financial services USPS could provide include:
● Basic checking and savings accounts
● Low-interest loans
● Debit cards
● Check cashing
● Money wiring services
● Online banking services
Together, we are going to put predatory lenders out of business and provide affordable banking options to all Americans through the United States Postal Service.