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Bernie Sanders, AOC unveil legislation to cap credit card interest at 15%

By USA TODAY

Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez say legislation is needed to protect consumers from "greed" of credit card and banking industriesRead full story

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  • Finance 101, right? Return is related to risk. If my return is limited to 15%, and I have to subtract a certain loan loss reserve, then basic economics tells you that when the net marginal return of a *different* investment exceeds that of making credit card loans, then I will stop making credit available. In short, this would drive investors to make significantly less available for lending, and make it much harder for poorer credit risks to get any loans at all. So instead of being able to borrow

    Finance 101, right? Return is related to risk. If my return is limited to 15%, and I have to subtract a certain loan loss reserve, then basic economics tells you that when the net marginal return of a *different* investment exceeds that of making credit card loans, then I will stop making credit available. In short, this would drive investors to make significantly less available for lending, and make it much harder for poorer credit risks to get any loans at all. So instead of being able to borrow money at 25% for emergencies (now) many people simply won't be able to borrow at all in emergencies. This is AOC's simplistic lack of understanding at it's most obvious.

  • So for those with lower credit scores instead of getting credit with high interest rates the banks will simply refuse to issue them credit. This will hurt those it's trying to protect.

  • Adieu the payday loan industry and its loan sharks. This is the kind of policy we need to protect people. And they can along when the left comes together. A policy for the many, not the few.

  • James Horn
    James HornFinancial Advisor

    This will have dozens of negative effects that won't fit into a 30 second sound bite, so the vast majority of the electorate won't hear anything other than "lower interest rate on my credit card." This is pandering for votes on the lowest level.

  • Those that don’t have a strong credit history will not be given a credit card with a 15% interest rate,they will be able to get loans from Tony or Gino who work out of the local bar.

  • Paul O'Brien
    Paul O'BrienCEO at MediaTech Ventures

    Eh... The recent GOP proposal to ban loot boxes in mobile games, to protect kids from gambling and addictive pay schemes, not government overreach, kids aren't mature enough to make the best decisions. But preventing free market companies from offering debt at whatever rate they want, to adults? That's government overreach. I get the intention, and it's not necessarily a bad one, but stay out of the private sector, that never bodes well. Instead, fix our education policies to actually teach people

    Eh... The recent GOP proposal to ban loot boxes in mobile games, to protect kids from gambling and addictive pay schemes, not government overreach, kids aren't mature enough to make the best decisions. But preventing free market companies from offering debt at whatever rate they want, to adults? That's government overreach. I get the intention, and it's not necessarily a bad one, but stay out of the private sector, that never bodes well. Instead, fix our education policies to actually teach people how to be capable adults ready to deal with their finances.

  • Weiyee IN
    Weiyee INChief Strategy Officer

    To Jacob's point, anyone that has worked in a bank can tell you that this plan is not going to benefit the currently underserved. If we assume that the goal for society is financial inclusion and financial literacy, these plans are going to hurt both of those goals. Unless the government is going to force Banks to pick up clients with poor credit ratings and risky histories the net effect is that banks will disenfranchised a large portion of their business for the sake of risk management and profitability

    To Jacob's point, anyone that has worked in a bank can tell you that this plan is not going to benefit the currently underserved. If we assume that the goal for society is financial inclusion and financial literacy, these plans are going to hurt both of those goals. Unless the government is going to force Banks to pick up clients with poor credit ratings and risky histories the net effect is that banks will disenfranchised a large portion of their business for the sake of risk management and profitability. Moreover the lessons that the plan will teach will actually be further and further away from educating consumers towards financial literacy and better risk management.

  • You’re still a loan shark at 15%, but, you’re not an impossible 30% loan shark.

    Think about it- where can the average person get 15% interest on their investment? And this is A+ low risk credit.

  • Kalesh Menon
    Kalesh MenonFinance Controller at Ingredion Thailand

    This is interesting. I always thought credit card interest is more of a deterrent than an actual revenue stream for the banks. Credit cards are supposed to be emergency credit, right?

    So, according to this theory, everyone should borrow more and spend more and help economy grow till the credit bubble bursts and the government has to bail out the bankers using tax payers money. Interesting indeed. 🤔

    So, if eventually the risk is falling back on the government, why not spend a reasonable amount

    This is interesting. I always thought credit card interest is more of a deterrent than an actual revenue stream for the banks. Credit cards are supposed to be emergency credit, right?

    So, according to this theory, everyone should borrow more and spend more and help economy grow till the credit bubble bursts and the government has to bail out the bankers using tax payers money. Interesting indeed. 🤔

    So, if eventually the risk is falling back on the government, why not spend a reasonable amount of money on creating a funding mechanism for these segment of society targeted by Mr Sanders whereby they can be subsidized for funding needed for necessities, if that is what is intended, I mean.

    Cheap credit is a ticking time bomb in the hands of masses. If you further throw risk assessment out of the window, might as well ask the banks to change the definition of probability of recovery and thereby accruals on recovery. Atleast the expectations are clear and we always see what's ahead.

  • David Yakobovitch
    David YakobovitchAI Professor at Galvanize

    This is important and necessary. 30% credit card interest is outrageous.

  • Kevin Wilson
    Kevin WilsonProject Manager at undisclosed

    Credit cards are a symbol for what is wrong with banking. Making high risk loans combined with high interest greatly increases the chance of not only loosing money on credit cards, but other banking "services" like mortgages as well.

  • Brett Goodwin
    Brett GoodwinManagement Consultant

    For those claiming that this will “hurt consumers” because “banks won’t lend to them”, you should realize that people whose only option is to get a payday loan end up WORSE OFF than if they had no credit at all. Often it is a scheme to extract maximum value from a consumer in a desperate situation, and then foreclose on their collateral (usually a car title). People should have better options when they hit rock bottom than predatory lending. This is a great first step, next step: guaranteeing assistance to those who need it!

  • Mike Ace
    Mike AceCheesemaker at Foremost Farms USA

    Always the lead-in that’s so attractive. Yes, credit card companies are easy to portray as evil. 70% of Americans have them. Mine are used instead of cash, and rarely go unpaid. Will they continue to protect us from fraudulent sellers if this goes through? Do we sometimes smile when people commit fraud against them? Car title lenders may charge 25% of the car. This is legal loan sharking.The poorest are the ones most vulnerable. This is one attractive policy that needs to be looked at from all sides

    Always the lead-in that’s so attractive. Yes, credit card companies are easy to portray as evil. 70% of Americans have them. Mine are used instead of cash, and rarely go unpaid. Will they continue to protect us from fraudulent sellers if this goes through? Do we sometimes smile when people commit fraud against them? Car title lenders may charge 25% of the car. This is legal loan sharking.The poorest are the ones most vulnerable. This is one attractive policy that needs to be looked at from all sides. The thing is that Capitalism and competition should be the thing that keeps interest rates down.

  • Asa Fetherston
    Asa Fetherston

    Hahaha desperate for votes, are we?

  • Now if only they could do this with loans too!

  • Ricardo Quintana
    Ricardo Quintana

    Banks have to make money to lend money...the reason rates are so dang high is because the gov't tied bankers hands on fee revenue, so in order to compensate revenue they had to increase the rates they charge for credit.

    Also- puts yet another squeeze on small financial institutions.

  • Here's the thing though. Currently even if you have good credit, like I do, Credit card fees are still at the same high rates as those with poorer credit. Am I the only seeing this trend. Free market does what it does I get it but greed seems to always win out. Not sure what a good solution is but we're all getting screwed by banks who couldn't give 2 fucks.

  • Ephrat Livni
    Ephrat LivniSenior Reporter at Quartz

    This seems like a smart move. Bernie’s formulation “economic brutality” is apt. Borrowing and lending are fine but extortionate interest rates that hurt those most in need of funds and least capable of paying back in full each month create a cycle of debt that can barely be escaped.

  • James Randorff
    James RandorffMusician, Instructor at US Navy

    People invested in the banking industry will find every BS reason why this will supposedly hurt the poor, but the fact is that they only care about the dip this legislation will create in their portfolios.

    Suck it up and try thinking of someone else, and you might just do some good for the entire country (and, yes, yourself) in the process.

  • Catherine Tannahill
    Catherine Tannahillprof, teacher

    Did anyone ever think that these rates & payday loans exist for a reason? When you take them away you frequently hurt those you say you are helping. Thus, the well known joke: I'm from the govt, I'm here to help.

  • Shakima Williams-Jones
    Shakima Williams-JonesOwner at Love Movement LLC

    I believe that the interest rate should not be more than 5%, however this is a great start when most cards have an interest rate of about 25%. I hope that push for this.

  • Patrick Lundstrom
    Patrick Lundstrom

    ”So for those with lower credit scores instead of getting credit with high interest rates the banks will simply refuse to issue them credit.”

    Which they should. Credit score is a measure of how good you are with money, not how much you have. I have a excellent credit score and make $30K a year. They high credit score helps a lot.

  • Bob Cohen
    Bob Cohen

    Then let's also have a minimum of 15% on savings accounts.

  • Angela Col
    Angela Col

    Inevitable with open banking, wasn’t it?

  • Sutjahjo Ngaserin
    Sutjahjo Ngaserin

    The economic is simple, if 15% is sufficient to cover the cost of funds, percentage loss as a result default and administration etc and is more profitable than other loans, it won't change the business model. If it doesn't, you'll see funds for credit card loans dry up, first for those with the lowest credit scores, then possibly all when the market conditions like interest rates and default go up. For politicians eager to score point, why limit at 15%? Try 12%? 10%? 8% or even forgive all loans

    The economic is simple, if 15% is sufficient to cover the cost of funds, percentage loss as a result default and administration etc and is more profitable than other loans, it won't change the business model. If it doesn't, you'll see funds for credit card loans dry up, first for those with the lowest credit scores, then possibly all when the market conditions like interest rates and default go up. For politicians eager to score point, why limit at 15%? Try 12%? 10%? 8% or even forgive all loans and make the "profitable" banks pay till they go bankrupt? After all current group of politicians are only interested to get votes. Economy be dammed!

  • Dilip John
    Dilip JohnOwner at Apple's Heart Corporation

    Now that gets my support... It will force credit card companies to stop lending to the riskiest with huge penalties and fees, and predatory lenders will take a huge hit to their business models

  • Steve Carlson
    Steve Carlson

    Those complaining about folks not being able to get credit cards are crooks. Its about forcing financial responsibility instead of allowing the banks and others to prey on people for profit.

  • Marc Coaches
    Marc CoachesCallisto Foundation

    The comments overall here are disappointing. While I am not for or against thisegislation at present, I think it is difficult to argue that usury has not once again become detrimental to economic development. When you consider basic economic principles, no capital-owners will not tap on the breaks until they themselves are afraid of disaster, likely a moment too late.

    In any case, the outcome of legislation like this is always domewhat unpredictable but it is certain that high-risk borrower will

    The comments overall here are disappointing. While I am not for or against thisegislation at present, I think it is difficult to argue that usury has not once again become detrimental to economic development. When you consider basic economic principles, no capital-owners will not tap on the breaks until they themselves are afraid of disaster, likely a moment too late.

    In any case, the outcome of legislation like this is always domewhat unpredictable but it is certain that high-risk borrower will still be offered plenty of credit and low-risk borrowers will encouraged to accept exponentially more credit at lower interest rates.

  • Lucille Griffin
    Lucille Griffin

    Of course this seems like a bad idea... Until the bubble bursts and it will. The free market gave us derivatives and CDOs until you could paper a skyscraper with them and then the ball was over and taxpayers were left in deep doodoo. When will we ever learn.

  • Patricia Lynne
    Patricia Lynne

    In surprised they don't simply endorse a plan where there is a credit card from the Treasury. Govt. does everything sooooo much better.

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