Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez are the introduction of a bill impose a 15% interest rate cap on all consumer loans.
The legislation, called the Loan Shark Prevention Act, is a shot fired in the war between self-identified Democratic Socialist lawmakers and the business elite. With their growing national profile and growing base, the former seek to make working class people understand that they will fight tooth and nail to protect them from Wall Street predation.
Sanders and Ocasio-Cortez deployment video has evolved into a sprawling conversation, touching on everything from healthcare to criminal justice. Their discussion lingered on the resonance of a chosen quote from James Baldwin: “Anyone who has ever fought against poverty knows how extremely expensive it is to be poor.
Ocasio-Cortez reported that she heard from a voter who took out a bank loan in 2006 to pay for her mother’s cancer treatments. The bank charged her an interest rate of 20 percent, which allowed her to pay the bank itself $ 800 per month, on top of the financial difficulty of looking after her mother. When he lost his job during the recession and became unable to make these payments, the bank sued him and garnished his salary.
“It’s legal, and it’s common in the United States of America,” Ocasio-Cortez said, “but it’s not normal, and it’s not human.”
“You’ve got all these guys in their three-piece suits who are now the new loan shark thugs we used to see in the movies,” Sanders said. “You know, in the movies they say, ‘I’m going to break your kneecaps if you don’t pay back.’ Well, I don’t know if they break the kneecaps …
“But now they’re going to take you home,” Cortez said.
“Or maybe do something even worse,” Sanders replied. “Maybe disconnect from your mother who needs medical treatment. So let’s be clear on what we’re talking about. We are talking about economic brutality.
Sanders pointed out that many states once had laws capping interest rates in their jurisdiction. In 1978, the Supreme Court Marquette decision allowed banks to establish charters in states without such laws and charge high interest rates across state borders. As a result, while it was once common for interest rates to be capped at less than 15% in many places, banks are now able to charge exorbitant rates – up to 30% in some cases – in many places. the whole country with impunity.
The Loan Shark Prevention Act would end this practice, subjecting all banks to the same 15% interest rate cap, regardless of where they hold charters. The legislation is modeled on a Sanders bill first proposal in 2009. (He used the same language ten years ago about “Lender Sharks in Three Piece Suits”.)
The bill extends beyond banks to all consumer loans, including those issued by retail stores. It is becoming common for department stores like Sears, Macy’s, Lowe’s and Kohl’s to issue credit cards themselves. Consumers are often unaware of the terms attached to credit cards, including loans with very high interest rates.
“The private equity groups are taking these everyday retail companies, and they stop being retail companies, and they start being basically finance companies,” Ocasio-Cortez said. “It’s not a department store that sells you a credit card. It’s a credit card company that lures you into a department store.
By capping interest rates on all consumer loans, the Loan Shark Prevention Act would essentially wipe out the payday lending industry.
It is common for traditional banks to have terms that require consumers to keep a minimum amount in their bank account at all times, or to pay fees. A typical minimum amount is $ 1,500 – but millions of Americans living on paychecks don’t have $ 1,500 in their name every day of the month.
The result is that one in four American households, or roughly 68 million people, are un- or under-banked, which means they are totally or partially excluded from traditional financial services. The problem is exacerbated by the withdrawal from banks low-income communities, both rural and urban, especially after the financial crisis. Millions of people, including Ocasio-Cortez voters in New York City and Sanders voters in rural Vermont, live in what are known as banking deserts.
If people don’t have access to a traditional bank and need cash in a pinch – say their car breaks down, they have a medical emergency, or they have to pay rent to avoid eviction – the only option available is often payday lenders. These companies exist to prey on people in dire financial straits, sometimes make them pay tariffs by several hundred percent. The Loan Shark Prevention Act would subject payday lenders to the same interest rate cap as everyone else, pushing them into bankruptcy.
But what about all the people who remain unbanked and cannot afford to maintain a traditional bank account? If payday lenders are wiped off the map, a major financial predator disappears, but also a source of emergency money, or even a convenient place to cash a check. While not part of this legislation, Sanders and Ocasio-Cortez addressed this issue by calling on the United States to revive a postal banking system. (Sanders introduced a law to study postal banking in 2013.)
By law, the United States Postal Service is required to have a physical post office in every zip code in America. From 1911 to 1966, the USPS operated as a public bank, offering basic financial services at post offices. Sanders and Ocasio-Cortez want to bring back this practice. They to propose that the USPS begin providing the public with basic checking and savings accounts, low-interest loans, ATMs, debit cards, check cashing, money transfer services, and online banking services.
Payday lenders would be gone, but the postal service would fill the void – without predatory or extortionate practices. This way everyone could have a bank account and access to credit, and there would be no more loan sharks. to attack people desperate for profit.
As Ocasio-Cortez seemed to suggest in the bill’s announcement, a postal banking system could be a pilot program for an independent public bank – a public option, if you will. Researchers Thomas Herndon and Mark Paul sketched what it might look like in practice. A public bank would compete with private banks, forcing them to lower their interest rates to retain customers, a process that over time could significantly ease the burden of consumer debt.
In the United States, wages have stagnated, the cost of living is skyrocketing, and the median credit card interest rate is 21%, drowning people in consumer debt. Feeling the pressure, nearly 90 percent of Americans support a cap on interest rates. But the powerful banking lobby will back down and the bill will face challenges in a legislature with close ties to the financial industry on both sides of the aisle.
In their deployment video, Ocasio-Cortez and Sanders urged voters to pressure lawmakers to prioritize the needs of workers over the interests of their friends on Wall Street.
“Today we are telling Wall Street and payday lenders enough is enough,” he said. “Your grotesque and disgusting behavior is not acceptable in America.” But the task cannot be left to a few politicians brave enough to challenge the corporate consensus. People need to organize themselves to make lawmakers understand: if you choose lobbyists and donors over us, it will cost you your career.