Bernie and AOC Team Up Against Companies That Prey on the Poor

[Uncle Joe]

Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, the two most well-known democratic socialists in Congress, joined forces to introduce a major piece of legislation on Thursday. The Loan Shark Prevention Act would cap credit-card interest rates at 15 percent, reducing those rates back to their 1980 levels. The Federal Reserve would have the ability to raise rates above 15 percent for a period of 18 months, but only to preserve the “safety and soundness of financial institutions,” according to the Daily Beast. Though the bill is a nonstarter as long as Republicans control the Senate, it’s a useful glimpse into Ocasio-Cortez’s development as a lawmaker and Sanders’s priorities as a presidential candidate.

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The bill’s broader aim is to protect low-income people from predatory financial practices. It’s often difficult for low-income people to access credit at all, and when they do, they’re more likely to have poor credit and to take out subprime credit cards with high interest rates. Struggling families often bear higher-than-average debt burdens, too, as they take on more debt to keep up with costs of living that have far outpaced wage growth. “About 1 in 5 American families who make $41,200 or less have what’s considered a hefty debt burden — defined as more than 40% debt-to-income load,” CNN reported in 2015, drawing from a Morgan Stanley Institute study. And while wealthier households can afford to pay down credit cards quickly, lower-income households struggle to do so and can trap themselves further and further into debt. As Gary Rivlin noted in a 2014 piece for the Daily Beast, it’s expensive to be poor.

In addition to capping interest rates, Sanders and Ocasio-Cortez propose a system of postal banking, which would undercut the predatory payday-lending industry by authorizing the U.S. Postal Service to provide basic banking services. Individuals would be able to open checking and savings accounts and apply for low-interest loans through the postal service. Sanders isn’t the only 2020 hopeful to endorse postal banking. Senator Elizabeth Warren has done the same, and Senator Kirsten Gillibrand introduced a postal banking bill in 2018.

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The former VP, in contrast to Sanders and several other Democratic candidates for president, has a less-than-progressive history with credit-card companies. Back in 2005, he sparred with Elizabeth Warren — who was then a Harvard Law School professor, not his primary competition — over a bill that made it more difficult for families to declare bankruptcy. Credit-card companies supported the bill; so did Biden, who became one of its most committed supporters in the Democratic Party. MBNA Corp., a credit-card company based in Biden’s home state of Delaware, was one of his biggest sources of campaign contributions over the course of his career. (MBNA has changed hands twice in recent years; it was acquired by Bank of America and then by Lloyds’ Banking Group.) Biden’s son, Hunter, also worked for MBNA.

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http://nymag.com/intelligencer/2019/05/sanders-and-ocasio-cortez-call-for-capping-credit-card-rate.html

[Uncle Joe]

1. "Despite the fact that banks can borrow money today at less than 2.5% from the Federal Reserve,

“Despite the fact that banks can borrow money today at less than 2.5% from the Federal Reserve, the average credit card interest rate today for consumers is a record-breaking 17.71%,” the Vermont Senator and freshman Queens Congresswoman said in a statement about the plan.

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Consumers with less-than-perfect credit scores are being offered especially high interest rates, and Bankrate points out that even borrowers with good credit are paying over 17%, on average.

Americans paid banks $113 billion in credit card interest in 2018, according to MagnifyMoney, up 12% from the $101 billion in interest paid in 2017, and up 49% over the last five years, as Fed rate increases have been passed on to consumers.

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Though as Sanders and Ocasio-Cortez point out, in 1980 Congress passed legislation requiring credit unions to cap interest rates on their loans and credit union credit card APRs can't go above 18%.

https://finance.yahoo.com/news/bernie-sanders-and-aoc-introduce-plan-to-cap-credit-card-rates-at-15-155341919.html

[Uncle Joe]

2. Usury

Usury (/ˈjuːʒəri/)[1][2] is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Originally, usury meant interest of any kind. A loan may be considered usurious because of excessive or abusive interest rates or other factors. Historically, in some Christian societies, and in many Islamic societies even today, charging any interest at all would be considered usury. Someone who practices usury can be called a usurer, but a more common term in contemporary English is loan shark.

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Some of the earliest known condemnations of usury come from the Vedic texts of India.[3] Similar condemnations are found in religious texts from Buddhism, Judaism, Christianity, and Islam (the term is riba in Arabic and ribbit in Hebrew).[4] At times, many nations from ancient Greece to ancient Rome have outlawed loans with any interest. Though the Roman Empire eventually allowed loans with carefully restricted interest rates, the Catholic Church in medieval Europe banned the charging of interest at any rate (as well as charging a fee for the use of money, such as at a bureau de change).

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On a federal level, Congress has never attempted to federally regulate interest rates on purely private transactions, but on the basis of past U.S. Supreme Court decisions, arguably the U.S. Congress might have the power to do so under the interstate commerce clause of Article I of the Constitution.

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In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act. Among the Act's provisions, it exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits. Combined with the Marquette decision that applied to National Banks, this effectively overrode all state and local usury laws.[46][51] The 1968 Truth in Lending Act does not regulate rates, except for some mortgages, but requires uniform or standardized disclosure of costs and charges.[52]

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https://en.wikipedia.org/wiki/Usury