State Bankers Association Letter in Opposition to S.381, the 10 Percent Credit Card Interest Rate Cap Act

Dear Senators Sanders and Hawley:

We write on behalf of trade associations representing banks of every size in strong opposition to S.381, the 10 Percent Credit Card Interest Rate Cap Act. This legislation would have a devastating effect on access to credit for individuals and small business owners who use their personal cards as a form of liquidity by imposing an all-in annual percentage rate (APR) cap at 10 percent. Study after study has shown that even modest government price controls raise costs rather than lowering them. Government intervention prescribing the terms of a highly popular unsecured credit product would likely restrict or eliminate altogether the availability of this type of short-term revolving line of credit for millions of Americans who depend on this resource.

Ensuring access to credit for all consumers is a shared goal among policymakers, consumers, and financial institutions. The credit card industry plays a critical role in providing this access, and because of its efforts more than 80 percent of U.S. consumers have access to safe, reliable, and highly regulated credit that can be used nearly anywhere on demand. A cap on credit card interest rates is a price control on credit that will lead to credit shortages. There is a large body of empirical evidence that illustrates how rate caps harm consumers, including:

After a rate cap was imposed in Illinois, credit access for unsecured installment loans fell and the financial well-being of higher-risk borrowers worsened.
A similar rate cap in Oregon was responsible for harming, not helping, consumers on average, and caused deterioration in the overall financial condition of Oregon households. For example, short-term borrowers in Oregon were more likely to pay bills late and overdraft their checking accounts.
In Chile, a rate cap resulted in more than 80 percent of consumers being made worse off, including 200,000 families that were cut out of the credit market entirely, with young, poor, and less-educated families bearing the brunt of the burden.
In the United Kingdom, a rate cap on high-cost, short-term loans caused many families to lose access to loans, with those affected likely to be young, unemployed, and poor.

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State Bankers Association Letter in Opposition to S.381, the 10 Percent Credit Card Interest Rate Cap Act

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State Bankers Association Letter in Opposition to S.381, the 10 Percent Credit Card Interest Rate Cap Act

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