Credit Card Reform Doesn’t Cap Interest Rates

The new legislation regarding credit cards is designed to make credit more fair and transparent for Americans. There will be no more double cycle billing, no interest rate increases until an account has been late for 60 days or more, and credit card bills must be mailed 21 days before they’re due – among other changes.
Unfortunately, a bill sponsored by Sen. Richard Durbin (D-Ill) was not passed as part of the reform. It would have capped the total interest, fees and finance charges at 36% for all consumer credit. This is a cap currently placed on military family’s credit usage.
Payday loans are the worst abusers of interest rates, where they often make borrowers pay two or three times the amount they borrow in exchange for a few days advance on their pay. But the proposed interest rate cap would have applied to all consumer credit – payday loans, car loans, credit cards and mortgages.

This isn’t a new concept actually. In 1886, all states had interest rate caps in place. When banks began lending through credit cards in the 1950’s, banks in state’s with higher interest rates started lending to Americans living in other states where the caps were lower and charging them the higher interest rates. In 1978, The Supreme Court ruled that the National bank Act allowed lenders to charge the highest interest rate permissible in their home state – so what happened? Credit card companies moved their businesses into states that had higher interest rate caps – or none at all – so they could charge what they wanted.