At a time when many Americans in the collapsing middle class use credit cards for groceries, gas and college expenses, what Wall Street and credit card companies are doing is not much different from what gangsters and loan sharks do when they make predatory loans. While the bankers wear three-piece suits and don't break the knee caps of those who can't pay back, they are still destroying people's lives.
The Bible has a term for this practice. It's called usury. And in The Divine Comedy, Dante Alighieri's epic poem, there was a special place reserved in the Seventh Circle of Hell for sinners who charged people usurious interest rates.
Today, we don't need the hellfire and pitch forks, we don't need the rivers of boiling blood, but we do need a national usury law.
We need a national law because state laws no longer work. States used to protect consumers from predatory lenders, but strong state usury laws were obliterated by a 1978 U.S. Supreme Court decision. Justices allowed national banks to charge whatever interest rate they wanted if they moved to a state without an interest rate cap like South Dakota or Delaware.
That is why I have introduced legislation to require any lender in this country to cap all interest rates on consumer loans at 15 percent, including credit cards. Why did I select 15 percent as the appropriate rate to deal with the usury which is going on in this country? The reason is that 15 percent is the maximum that Congress imposed on credit union loans almost 30 years ago when it amended the Federal Credit Union Act. And that approach has worked. Under current law, credit unions are allowed to charge higher interest rates only if their regulator, the National Credit Union Administration, determines that it is necessary to maintain the safety and soundness of these institutions. Right now, while most credit unions charge lower rates, the NCUA allows credit unions to charge an interest rate as high as 18 percent.
Unlike their counterparts at the big banks, credit unions are not lining up for hundreds of billions in bailouts. In fact, they're doing quite well. As Chris Collver, legislative and regulatory analyst for the California Credit Union League recently stated; "It hasn't been an issue. Credit unions are still able to thrive." In my view, if these rules have worked well for credit unions for decades they can work for all financial institutions.
In 1991 former Senator Al D'Amato offered an amendment to cap credit card interest rates at 14 percent. The amendment passed the Senate by a vote of 74-19, but never became law. Now is the time to return to that debate.