Amendment to Wall Street Reform Bill Seeks to Protect Consumers from High Credit Card Rates

A bipartisan group of legislators, namely U.S. Sens. Sherrod Brown, Sheldon Whitehouse (D-RI) and Bernie Sanders (I-VT), have urged support for the Interstate Lending Amendment to the Wall Street reform bill (“Restoring American Financial Stability Act of 2010,”  S. 3217).

The bipartisan amendment would eliminate a loophole that permits big credit card lenders to avoid state law interest rate caps, according to these legislators. In doing so, it would level the playing field for local lenders who are already subject to limits in each state.

For more than 200 years, each state had the ability enforce usury laws against any lender doing business with its citizens.  In 1978, a Supreme Court case, Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, opened up a loophole through which big national banks have been able to avoid state law interest rate caps, according to Sen. Brown.

The Interstate Lending Amendment would close that loophole and make clear that credit card companies and other lenders—no matter where in the country they are located—must abide by the interest rate limits of the states in which their customers reside.

Specifically, the Interstate Lending Amendment would:

- Restore to the states the ability to enforce interest rate caps against out-of-state lenders.

- By Amending the Truth in Lending Act, cover all consumer lenders, no matter what their legal form, minimizing the opportunity for gaming by changing charter type.

- Become effective twelve months after enactment - giving state legislatures time to evaluate and update usury statutes.

- Level the playing field so that intrastate lenders like community banks, local retailers, and credit unions are no longer bound by stricter lending limits than national credit card companies.

Introduced by Sen. Whitehouse on April 30, 2010 Brown was joined in cosponsoring the amendment by Senators Thad Cochran (R-MS), Jeff Merkley (D-OR), Dick Durbin (D-IL), Bernie Sanders (I-VT), Carl Levin (D-MI), Roland Burris (D-IL), Al Franken (D-MN), Robert Menendez (D-NJ), Patrick Leahy (D-VT), Jim Webb (D-VA), Bob Casey (D-PA), Ron Wyden (D-OR), and Jack Reed (D-RI). More than 200 national and state organizations - including the AARP, Consumer Federation of America, and Consumers Union, National Consumer Law Center (on behalf of its low-income clients), and Public Citizen - support this reform.

“Right now, federal banking law prevents states from stopping sky-high credit card rates and fees.  All a credit card company needs to do is set up shop in a state with weak laws and start minting plastic.  Ohioans should be able to decide the rules for Ohioans,” said Brown. “Given the sophistication they show when it comes to marketing, I am confident credit card companies will be able to determine the state in which a person lives and apply state laws accordingly.”

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