There is a huge sense of outrage in our country today at what Wall Street has done through greed, recklessness and, likely, illegal behavior. The "Masters of the Universe" have plunged our nation, and much of the world, into a deep recession which has caused millions of Americans to lose their jobs, their homes, their savings and their hope for the future. In order to fully understand the cause of this fiasco, I have introduced legislation calling for a thorough investigation of the financial meltdown and the prosecution of those CEOs who might be guilty of illegal behavior. The culture of greed, fraud and excessive speculation must come to an end.
As I talk to Vermonters about this crisis one of the great frustrations that I hear is that while taxpayers are spending hundreds of billions of dollars bailing out major financial institutions, and while these big banks are getting near-zero interest rate loans from the Fed, these very same financial institutions are now charging Americans 20 percent or 30 percent interest rates on their credit cards. In fact, one-third of all credit card holders in this country are now paying interest rates above 20 percent and as high as 41 percent – more than double what they paid in interest in 1990. Recently, some major institutions, such as Bank of America, have informed responsible cardholders that their interest rates would be doubled to as high as 28 percent, without offering any explanation or excuse why the increase was taking place.
Let's be clear. What Wall Street and credit card companies are doing is really not much different from what gangsters and loan sharks do who 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 still are 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. So major credit card issuers moved to places like South Dakota and Delaware that don't have usury laws.
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. 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 (NCUA), determines that it is necessary to maintain the safety and soundness of these institutions and when money market interest rates have risen over the preceding six months. 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. They are responding to the credit needs of the small businesses in their communities and to individuals. They have not only survived this regulation, they are functioning exactly the way they are supposed to function. In my view, the rules that have worked well for credit unions for decades can work for all financial institutions.
Former Senator Al D'Amato in 1991 offered an amendment to cap credit card interest rates at 14 percent. The amendment passed the Senate by a vote of 74 to 19, but never became law. Now is the time to return to that debate. Now is the time to protect a struggling middle class and pass legislation to put a cap on interest rates.