In a new letter to the Senate today, the American Bankers Association and 52 state bankers associations representing banks of every size expressed strong opposition to any effort to attach the 10 Percent Credit Card Interest Rate Cap Act as a poison-pill amendment to the unrelated GENIUS Act or any other legislative vehicle.
The associations outlined why the legislation, which would impose an all-in annual percentage rate (APR) cap at 10 percent on credit cards, “would have a devastating effect on access to credit for individuals and small business owners who rely on seamless access to liquid credit lines.”
“Study after study have shown that even modest government price controls raise costs rather than lowering them,” the groups wrote. “Massive government intervention dictating the terms of a highly popular unsecured credit product would restrict or outright eliminate the availability of this type of short-term revolving line of credit for millions of Americans.”
An ABA analysis conducted in 2020 found that if a 15% interest rate cap were enacted, nearly 95% of subprime borrowers would be at risk of losing access to credit cards – equivalent to 65 million accounts. The negative impact on credit access would be even more pronounced at 10%.
“Credit cards are a form of unsecured credit,” the groups wrote. “Card issuers are able to extend credit based on borrowers’ creditworthiness and terms that ensure the cards are offered at rates commensurate with the potential risk of default. If the government dictates the price of credit, lenders will be forced to tighten underwriting practices, lower credit lines, and reduce cardholder rewards to manage their credit risk. They may also increase annual fees, impose monthly maintenance fees, or implement other pricing changes to partially offset the revenue loss caused by the rate cap. Given that the 10 Percent Credit Card Interest Rate Cap Act amendment includes provisions that severely restrict issuers’ ability to recoup revenue, the bill’s impact on credit access would be even more acute. Simply put, issuers would be compelled to reduce or eliminate access to credit for all but the lowest-risk customers.”
The groups explained that for many Americans a credit card is a critical source of funds in times of need, such as when they face an unexpected healthcare bill or an expensive car or home appliance repair. The tens of millions of consumers who would no longer be able to access the credit card market would be forced to turn to less regulated and more costly alternatives to manage these financial disruptions, including payday lenders, unregulated fintech lenders, and pawn shops.
“The evidence is clear: price controls, such as interest rate caps, harm consumers,” the associations concluded. “Laws that prevent lenders from charging credit card rates that correlate to a borrowers’ risk profile will lead to less lending and potentially eliminate card options for consumers. An avalanche of empirical research proves that rate caps have tangible, damaging effects on consumers, especially those who are already in vulnerable financial positions. The 10 Percent Credit Card Interest Rate Cap Act amendment would be a huge step backward for American households, small businesses, and the U.S. economy. To protect affordable access to credit, we urge policymakers to reject attempts to attach the 10 Percent Credit Card Interest Rate Cap Act to the GENIUS Act and rely on market forces, not politics, to determine interest rates.”