Senators’ legislation would allow states to cap credit card interest rates for their residents

Washington, DC – Today, Senators Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA), Jack Reed (D-RI), Bernie Sanders (I-VT), and Jeff Merkley (D-OR) introduced the Empowering States’ Rights to Protect Consumers Act (S. 3321), which would protect consumers by restoring the ability of states to limit credit card and other consumer loan interest rates for their residents.

“When Wall Street banks and their credit card subsidiaries take advantage of consumers through astronomically high interest rates, states should be able to act,” said Whitehouse. “This bill will restore to states like Rhode Island the long-standing right to limit abusive interest rates and help protect families from runaway credit card debt.”

“We need to ensure states have the ability to enforce their own rules against lenders doing business within their borders,” said Senator Warren. “States should be empowered to take action to protect consumers from tricks and traps buried in the fine print by credit card companies.”

“States should have the power to protect their citizens, but federal courts have prevented states with strong consumer protection laws from fully enforcing them. This bill would restore Rhode Island’s ability to protect citizens from abusive interest rates,” said Senator Reed.

“Big banks need to stop acting like loan sharks and start acting like responsible lenders,” Senator Sanders said. “If we are going to create a financial system that works for all Americans, we have got to stop financial institutions from ripping off the American people by charging sky-high interest rates.”

“Allowing a race to the bottom in state bank regulation is dangerous and puts every American consumer at risk. This bill ensures that states are able to stand up for their own consumers and enforce the strong consumer financial protections on their books,” said Senator Merkley.

For more than 200 years, each state had the ability to enforce usury laws against any lender doing business with its citizens. That changed in 1978 when the Supreme Court in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation decided that a national bank is bound only by the lending laws of the state in which the bank is based, rendering states powerless to impose lending restrictions against lenders headquartered in other states. This decision effectively ended usury protections in the United States and gave credit card companies an incentive to locate in states with weak or non-existent consumer lending protections. Without these protections, many consumers now get stuck with interest rates of 30 percent or more.

The senators’ bill would amend the Truth in Lending Act of 1968 to clarify that all consumer lenders—regardless of their location or legal structure—must abide by the interest rate limits of the states in which their customers reside. Rhode Island, for example, had a state-level interest-rate cap for many years, but abandoned the cap after the Marquette decision rendered it moot. The Empowering States’ Rights to Protect Consumers Act would allow Rhode Island to re-instate a cap.

Whitehouse and Warren introduced similar legislation in the 113th Congress.