CUNA, NAFCU, and other financial trade associations representing virtually all banks and credit unions voiced their opposition to legislation from Sen. Josh Hawley, R-Mo., that would cap credit card interest rates at 18%. The organizations note that such a cap would “severely restrict” the availability of this type of credit for millions of consumers across this nation:
“Including annual fees and other fees in the calculation will cause credit cards to exceed the cap, resulting in the elimination or reduction of valuable credit card features like cash back and other rewards,” the letter reads. “This cap will also impede innovative credit cards with non-credit features designed to attract underserved groups because even a nominal annual fee could result in an all-in rate that exceeds the cap.”
The letter notes that despite supposed benefits to consumers, many consumers would be forced to turn elsewhere for short-term financing, including pawn shops, online lenders, and other less regulated entities.
“Credit cards are the primary vehicles for expanding financial inclusion and are one of the most highly regulated financial products available. Research shows that credit cards are the number one way that people who are ‘credit invisible’ can become credit visible and grow their credit history, helping them gain access to other products like mortgages and auto loans,” the letter reads.
The organizations also add the harmful effects of this proposal are only compounded by the CFPB's imminent rule to arbitrarily reduce credit card late fees.