[Congressional Record Volume 156, Number 62 (Thursday, April 29, 2010)]
[Senate]
[Pages S2790-S2794]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RUNAWAY CREDIT CARD INTEREST RATES
Mr. WHITEHOUSE. Madam President, I ask unanimous consent that my
statement be followed by a colloquy among the cosponsors of the
amendment I will be discussing.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. WHITEHOUSE. Madam President, I had actually planned to offer an
amendment to the Wall Street reform bill this afternoon, but I have
been informed that the open-amendment process does not begin until next
week. I
[[Page S2791]]
will describe my amendment this afternoon and then return to the floor
at the earliest opportunity to actually call it up.
Before I describe it, I wish to commend Chairman Dodd and Chairman
Lincoln for their hard work in crafting a strong Wall Street reform
bill. The collapse of the housing market in 2008 and the resulting
recession, near depression, was painful evidence that our financial
institutions were underregulated and that we were ill-prepared for the
invention of complex, new financial products.
The legislation we are currently debating will strengthen and
modernize our Nation's financial regulation and substantially reduce
the chances for future market bubbles and collapses, with all the
economywide collateral damage we have seen from this collapse.
My amendment is cosponsored by Senator Merkley, who is on the Senate
floor--I am delighted he is here with me--Senator Durbin, Senator
Sanders, and Senator Levin. It would address an area that is not yet
covered by the Wall Street reform bill, and that is runaway credit card
interest rates.
This amendment would address that issue not by imposing any new
restrictions on lending but, rather, by restoring to our States
historic powers that they held for hundreds of years and that were
eliminated only in the relatively recent past.
Madam President, when you and I were growing up, a credit card offer
with a 20-percent or 30-percent interest rate might well have been a
matter to bring to the police. Such interest rates were illegal under
the laws of most, if not all, of the 50 States.
Today, in contrast, credit cards routinely charge rates of 30 percent
or even more, usually after they have trapped people into a late
payment or some trick of some kind to get them away from the teaser
rate with which they sold them the credit card. They end up with 30
percent interest or higher. These interest rates have spiraled out of
control, and for reasons I will explain, the States, at least recently,
have been powerless to do anything about it despite the historic power
they had in this area.
Prior to 1978--indeed, for the first 202 years of our Republic--each
State had the ability to enforce usury laws against any lenders doing
business with its citizens. Our economy grew and flourished during
these two centuries. These were not hard periods for the financial
services industries, and lenders profited while complying with the laws
in effect where they operated. Then in 1978 came an apparently
uneventful Supreme Court case. It was little noticed at the time it was
decided. In Marquette National Bank of Minneapolis v. First of Omaha
Service Corporation, the Supreme Court interpreted one word--the word
``located''--in the National Bank Act of 1863. That word sat quietly in
that statute for 102 years, but in 1978 they interpreted it as meaning
the location of the business rather than the location of the customer--
where the bank was headquartered or domiciled rather than where their
customer lived.
Well, it did not take long before big banks cottoned on to the
opportunity this created--an opportunity never sanctioned by Congress
nor apparently even intended by the Supreme Court. It was an
inadvertent loophole, but they found it, and they realized they could
avoid the interest rate restrictions by reorganizing as national banks
and moving to States that had the weakest consumer protections. So what
happened? A race to the bottom. The proverbial race to the bottom took
place as a small handful of States eliminated consumer protections,
eliminated interest rate caps in order to attract into their States
lucrative credit card business and their related tax revenue.
Today, there is a reason the credit card divisions of major banks are
based in just a few States, and it causes consumers in all of our other
States to be denied the historic protection they enjoyed from
outrageous interest rates and fees. My amendment would reinstate the
historic longstanding powers of our sovereign States to decide which
interest rate limits, if any, should be set to protect their own
citizens.
Let me be clear about what this amendment would not do. It would not
prescribe or even recommend any interest rate caps and it would not
impose any other lending limitations. It would restore to the States
the power they enjoyed for over 200 years, from the very founding of
the Republic--the power to say ``enough,'' the power to say 30 percent
interest or 50 percent interest or 100 percent interest is too much and
we won't allow you to charge it to our citizens.
The current system is not just unfair to consumers who can't be
protected by their own State's government and are vulnerable to
predatory lending in States far from their home, it is unfair to local
lenders and retailers that continue to be bound by the laws of the home
State. They are still bound. So the home State bank is under the State
law. It is the huge, gigantic out-of-State national bank that can come
in and compete against those small banks with that disadvantage. The
small local bank has to play by the rules of fair interest rates, but
the gigantic national credit card companies can avoid having any rules
at all. So we need to level the playing field to eliminate this unfair
and lucrative advantage that Wall Street banks enjoy against our local
Main Street community banks.
To make sure lenders can't find another statute to use to once again
avoid State law, my amendment would apply to all types of consumer
lending institutions, not just national banks, and that is for the
purpose of forbidding them and preventing them from changing their
charters to avoid limitations on gouging consumers.
One of the other factors in this bill is that you can't choose your
regulator by changing your charter, and we have reached broadly with
this to protect against exactly that. My amendment would give State
legislatures ample time to revise their usury statutes, if they feel
they need revision, and would allow lenders the time to adjust. The
amendment would not go into effect until 1 year after the President
signs the bill into law.
In the meantime, it is worth noting that most States' usury laws are
around or above 18 percent, and that federally regulated credit unions
do quite well under a Federal 18-percent interest rate cap. So the
underlying interest rates that States tend to apply, when this power
has not been stripped from them, really inadvertently, tend to be quite
reasonable, as proven by the fact that our credit union industry
operates under a Federal 18-percent interest rate cap and does quite
well.
It is the 30-percent and over interest rates that are the recent
anomaly, the peculiarity in our country's history. We should go back to
the historic norm--the way the Founding Fathers saw things under the
doctrine of federalism--and close this modern bureaucratic loophole;
probably an inadvertent loophole, but one that the big Wall Street
banks found to gouge local citizens and compete unfairly with local
banks.
I ask my colleagues for their consideration on this, and I turn to
the distinguished Senator from Oregon, Senator Merkley.
The PRESIDING OFFICER. The Senator from Oregon.
Mr. MERKLEY. Madam President, I rise to praise my colleague from
Rhode Island for producing this amendment. I look forward to seeing it
offered. I certainly am honored to be able to cosponsor it. I thought I
would share with him a story that goes back to my days as a member of
the Oregon legislature.
When I came to the Oregon legislature, I had a lot of folks in my
house district saying: Wouldn't you do something about payday lending
and other high-interest lending? How is it possibly reasonable to have
payday loans, which are secured by the next paycheck at over 500
percent interest; and how is it reasonable or fair that I am being lent
money through my credit card at 25 or 30 percent when the interest I am
earning is just 1 or 2 percent? And I had no good answer for why it was
fair, because it wasn't fair. It wasn't right.
So I proceeded to start working on this issue. When I went down to
legal counsel, they advised me: Well, Representative Merkley, it works
like this. You, at the State level, can apply rules to payday lending
and to pawnbrokers and to title loans and to local consumer lending
companies but not when it comes to credit cards. They explained to me
the story that the Senator from Rhode Island just shared, that those
rules are set by the States issuing the credit cards.
[[Page S2792]]
Well, certainly any State that has reasonable standards for a credit
card, they are not going to be issued from within that State. Thus, we
come to the race to the bottom my colleague was describing. So I
proceeded to carry the fight and the battle over the payday lending,
the title loans, the pawnbrokers and the local consumer loans, and we
largely won that battle in Oregon, but we couldn't take on credit
cards.
In the back of my mind, when I was running for the Senate, I thought,
this will be an opportunity, if I join this body, to be able to weigh
in on the issue of States rights in favor of consumers, in favor of
common sense. So it is for all these reasons I am pleased to join
Senator Whitehouse as a cosponsor of his amendment.
Mr. WHITEHOUSE. Madam President, I am grateful for my colleague's
support.
I see Senator Sanders of Vermont has joined us on the floor, and I am
delighted to welcome him to our colloquy.
Senator Sanders.
Mr. SANDERS. I thank my colleague, and I applaud his introducing this
amendment.
The issue of credit card companies charging Americans outrageously
high interest rates is something that has concerned me for a number of
years. We have another amendment which approaches this issue from a
different level, but I am going to work with Senator Whitehouse, and I
think this is a very important amendment.
The bottom line here is that usury and loan-sharking is immoral, it
is wrong, and it has got to be prohibited. I know Senator Whitehouse
and Senator Merkley are more than aware, there are even Biblical
references in both the Old and New Testament to the immorality and the
condemnation of usury. We know as a Nation, people look askance at loan
sharks.
Let's be honest. What are we talking about here? If a financial
institution is charging people who are desperate enough to be buying
their groceries, in many cases their basic necessities, on their credit
card, 25- or 30-percent interest rates, if that is not usury, if that
is not loan sharking, then I don't know what is.
We have introduced legislation that would cap credit card interest
rates at 15 percent. Senator Whitehouse is approaching it in another
way, which is an interesting way. But the bottom line is that we have
to deal with the absurd Marquette ruling which essentially nullifies
what every State in the country has done. I think in Vermont we have
usury rates at 12 percent. But it doesn't mean anything because of the
Marquette decision.
So all over this country, when we have 20 percent of the people in
America now paying at least 20 percent interest rates on their credit
cards, those people want action. And when we talk about Wall Street
reform and we talk about consumer protection, yes, of course, we need a
strong, independent financial services consumer protection agency but,
more importantly, we need to address this outrage of high credit card
interest rates, and the amendment of the Senator from Rhode Island
would do that.
I think the American people want to see action, and I hope we can
work together on the amendment and on my amendment and give people some
relief.
Mr. WHITEHOUSE. Madam President, I thank Senator Sanders and both my
colleagues very much for their cosponsorship of this amendment and
their advocacy of it. I would hope we could find support for this from
the other side of the aisle.
I do not see this as an exclusively Democratic issue. If you look at
the arguments that have been made by all of us on the floor just now
for it--Senator Sanders spoke eloquently about the Judeo-Christian
tradition that informs so much of our civilization and its horror of
exaggerated exorbitant interest rates--for those of our colleagues who
are attuned to those traditions, who take their religious principles
seriously, they only have to harken back to sources of our Judeo-
Christian tradition to find these kinds of limits are good and
historic.
For those of us who are constitutional scholars and historians and
are familiar with the doctrine of federalism and the role of the States
in protecting their local citizens, the notion of States rights is one
that has frankly been championed by colleagues on the other side of the
aisle. Here is an opportunity to express their fealty to that doctrine
and to that principle of States rights.
To those who think that 202 years of successful tradition of local
regulation of interest rates has value, we can document that this is a
recent anomaly. This is a peculiarity we are correcting. The great
sweep of American history, over more than two centuries, is that the
States protected their citizens properly and well. Anyone who cares for
consumers in their States, local consumers up against huge credit card
companies that keep you waiting on the phone for hours when you have to
try to file a complaint, whose offices are in another State or in
another country, sticking up for your local citizens is something I
think we should all be prepared to agree to.
And finally, for those of us who have local banks, community banks,
Main Street banks that are domiciled in our home States, why should
they suffer the disadvantage of having to compete against these huge
rapacious credit card companies and Wall Street banks and be subject to
their State's law but have this loophole allow the monster banks, the
gigantic banks to take advantage of consumers in this way?
I think you can look at this amendment from a whole variety of
perspectives and the principles that it stands on are ones that many of
our colleagues on the other side of the aisle have supported and
championed over the years.
Mr. MERKLEY. If I might chime in at this point and say that in terms
of the discussion I saw at the State level in Oregon, this is a
bipartisan discussion, because it is indeed deeply rooted in traditions
and wisdom that extends back not just generations but thousands of
years.
Indeed, time after time after time the leaders--the philosophical and
the religious leaders, as well as political leaders--saw the damage
that was done to the foundation of societies from extraordinarily high
interest rates.
I think it goes back to understanding that the strength of a society
is in the strength of its families. You do not build strong families
when wealth is stripped away by usurious interest rates, by
extraordinary interest rates, rates that exceed by many times the
earnings on interest that a family can get by putting their money into
a bank or lending their money into a financial system. There is a very
small return there, but borrowing out of that financial system, very
high charges.
If our goal is to build families, then this has all the wisdom in the
world. I certainly want to note that the other aspect of this that
helps tie together Democrats and Republicans is that it is an issue of
local control. There was never a moment when this Chamber, or the
Chamber a few yards from here, the House Chamber, proceeded to say we
are going to take away States rights to control their own interest
rates on cards. There was never a moment like that. Such a law was
never passed.
Indeed, you have not just the fact that Federal law has trumped State
law but has trumped it without any deliberate act of Congress and in
the most bizarre of fashions. So I should think the reach in favor of
building strong families, building strong communities, and local
control will be high. I certainly look forward to a bipartisan effort
to pass this legislation.
Mr. SANDERS. If I can pick up from the Senator from Oregon, the
reason, for thousands of years, that religious leaders and philosophers
have condemned usury, which is what we are talking about today, is that
it is basically immoral, according to every major religion on Earth, to
tell a desperate person who is in need of a loan that I am going to
give you this loan but I am going to charge a very high interest rate.
That is condemned by every major religion on Earth as well as every
great writer I can think of who addressed that issue.
What I wish to do, I suggest to my friend from Rhode Island, is I
want for a moment to read some of the e-mails I received from Vermont
dealing with this issue we are attempting to address. You are dealing
with it one way. I am trying to deal with it more on a national way.
But we both, together, are trying to address this.
[[Page S2793]]
Let me give a couple of e-mails that came to me over the last couple
of months. This is from Jeffrey, from the State of Vermont:
I was one of those guys who failed to read the fine print.
A couple of years ago my credit card payment got lost in the
mail. By the time I had realized what had happened, they
charged me a $45 late fee and then spiked my interest rate up
to 35 percent. At the time I was in good standing with them.
I desperately tried to get this back on track but after 10 or
12 months of making these crazy payments I had to make a
choice--lose my transportation to work, lose my house--I am a
father of four beautiful children--or stop paying on the
credit card. Now my credit card report has suffered greatly
and, even though it has been over a year, they still harass
me almost daily. This situation has affected every part of my
family and my life.
That is the end of the quote from Jeffrey from Vermont.
This is Ronald from Colchester, VT:
I am writing about my Citi credit card.
I should point out, as my friend from Rhode Island knows, that the
four largest financial institutions in this country issue 66 percent,
two-thirds, of the credit cards in the country.
I am writing about my Citi credit card. My interest rate
went from 12 percent to 29.9 percent overnight. I phoned them
and was told it was not just myself paying that rate, but
everyone pays that rate. How can credit card companies let
you make purchases on your account for a moderate interest
rate and just mysteriously move to 29.9 percent overnight? I
hope you are able to pass your law to restrict credit card
companies from abusing their power over their customers.
I have gotten many e-mails and I am sure you have as well. The bottom
line is what we are saying is we intend to end this outrageous practice
on the part of huge banks that are ripping off the American people.
What Senator Whitehouse is trying to do is say let us go back to the
federalist principles of this country where States have established
their own interest rate caps, and let's enforce that.
We are taking a little bit different position. But both of us are
going to do everything we can to end this outrage and I applaud the
Senator from Rhode Island for his hard work on this.
Mr. WHITEHOUSE. Let me thank Senator Sanders, who is a passionate and
articulate consumer advocate, and Senator Merkley of Oregon, who has
come to the Senate in the interests of his native Oregonians, trying to
make sure they are well served. He has been remarkable at that.
I apologize to Senator Durbin. I know he wanted to come and join us
as well, but the timing changed and he was unable to attend. I thank
him for his cosponsorship of this amendment. I also thank distinguished
chairman of the Armed Services Committee, Chairman Levin, for
cosponsoring it. I am truly honored by their support. The distinguished
Senator from Illinois, Senator Burris, tells me he wishes to cosponsor
as well. So I am grateful to him and I thank him. He is a former banker
so he understands these issues very well, and he understands the effect
of backing in the local community. I am very gratified by his support.
The last thing I want to say before I close on this subject is that
the system by which credit card companies get consumers into these
high-interest rate predicaments is no accident. It is a system and it
has been carefully designed by the credit card companies, beginning
with the way they write the agreement.
When credit cards began, the credit card agreement was two or three
pages long. I am looking at an array of young pages here in front of
me. They are pretty soon going to be getting credit cards of their own.
They won't know what it was like when I got my first credit card. They
are going to get a first credit card contract that has 20 pages of fine
print. And hidden in the fine print have been amazing tricks and traps.
One of my personal favorites, which we thankfully ended under the
leadership of Chairman Dodd earlier, was that the credit card companies
would declare the day was over at 10 in the morning and then they would
open the mail at 11. So if you got your payment in on the day it was
due, they didn't open the mail until they declared the day was over.
The day wasn't over. The Sun was still up, morning was not even over,
but they had declared in the fine print of the contract that they could
end the payment day at 10 in the morning and then open the mail later
that day so your check was, guess what, late, and that put you into a
late payment category so they could jack your interest rate.
As Senator Sanders' constituent and so many folks in Rhode Island
have experienced, 1 day you are at 12.9 percent and the next day you
are at 30 percent and you don't know what hit you. And once they have
you there, it is very hard to unwind. It is very hard to pay it off and
get out. Many consumers cannot pay off their credit card all at once so
now they are trapped, and they are trapped in what Prof. Ronald Mann of
Columbia University has called ``the sweat box.''
He has looked at how the credit card companies manipulate their
consumers, and what they do is they set up all these tricks and traps
and suddenly you build up a nice balance and it is at a reasonable
interest rate but you fall into one of the traps. They catch you with
one of the tricks. And bang, they have you. You are now at a 30-percent
interest rate, you don't have the resources to pay it off all at once,
and the charges begin to pile up--the fees, the exorbitant interest--
and pretty soon they have got you completely over a barrel.
It is systematized. It is done to extract the maximum amount of money
and profit from consumers who are not aware of how sophisticated the
machinery is that is out there trying to gouge them.
This is not just a question of exorbitant interest rates; it is also
a question of pushing back against credit card companies that have
developed a system, the sweat box system, that needs to be put to an
end. And State regulation can help do it. Because if the State is not
being paid off with tax revenues to look away from what the bank is
doing, and if most of the damage is not being done in other States
whose complaints are not as relevant in the home State, in the domicile
State, then they get away with it.
They will not get away with it once federalism, States rights, and
the American tradition of State protection of its citizens are restored
and this inadvertent loophole is closed. My amendment would do that.
I hope colleagues who are listening to this will think about
supporting the amendment. As I said, I think it ought to have
bipartisan appeal and will certainly be good for people in our country
who are at the business end of the credit card industry's machine.
I yield the floor.
The PRESIDING OFFICER (Mr. Whitehouse). The Senator from Illinois.
Mr. BURRIS. Mr. President, my colleagues and I here in Washington are
here to fulfill a sacred public trust, a commitment we made the moment
we raised our hands and swore the oath of office. Whether we swore that
oath 30 days ago or 30 years ago, that commitment remains very real. We
are here to fight for the citizens of our respective States, to
represent their concerns and to make sure their voice rings out in the
committee hearings and on the floor of this Chamber. That is the
obligation we took upon ourselves the moment we entered public service.
I know it is something all of us take very seriously.
I call upon my colleagues to rise to the challenge of this pivotal
moment. It is time to live up to the promise we made. It is time to
stand up for the people we came here to represent, from all 50 States
of this Union. It is time to take action on Wall Street reform so we
can restore accountability to a system that has spiraled out of
control, and cost billions in taxpayers' dollars.
The U.S. Constitution makes it clear that my colleagues and I are
accountable to the American people we came here to serve. But because
we enjoy a thriving free market system, Wall Street bankers are bound
by no such accountability. That is why we used to have strict
regulations in place, such as basic capital standards and lending
requirements, that laid out the rules of the road by which all
financial institutions must operate--not to interfere with the market
but to assure that business practices were free and fair.
It used to be that banks, large and small, based their security on
the quality of their investments. I worked at a very large bank in
those days. The
[[Page S2794]]
lending decisions were driven by confidence in the local businesses.
Financial institutions sank or swam as a result of the choices they
made. This encouraged responsible choices and ensured that banks made
smart investments. It kept them accountable to the communities they
served and to the businesses in those communities.
I said a moment ago I served as a banker for many years. I helped
secure loans for small and large businesses. I fought to keep investing
in the local economy because I knew we had a responsibility to those
who worked with us. We helped enrich the people with whom we did
business. The bank's responsibility is to keep capital and cash
flowing.
The bank's responsibility is to keep capital and cash flowing. So we
were accountable to our customers. That is what banking used to be. But
not anymore. Gradually over the past few decades, tough standards were
relaxed, regulations were rolled back, and rules were bent or ignored
by some of the country's largest and most trusted financial
institutions. Greed replaced accountability as the driving force behind
many transactions. Banks made bad loans and then repackaged them with
other loans and sold off the risk. They created new types of securities
and invented ways to place high-stake bets on investments. These
activities have no value of their own. They have nothing to do with our
free market economy. They are designed to make easy money for big
banks, which pass the risk on to someone else. But they contribute
absolutely nothing to the economy. There is no product, no investment
in private enterprise that will benefit local communities.
So Wall Street has basically turned into a casino, and it has done so
at our expense. These fat-cat bankers were gambling not just with our
money but with our economic future. They placed our entire economy at
risk, and about 2 years ago their recklessness caught up with them. The
bottom fell out. The whole massive scheme began to unravel. The
American economy fell apart like a house of cards because that is
exactly what Wall Street had become--a giant pile of empty investments
that had been passed around between big banks, packaged and repackaged
to the point where these investments were supported by little more than
the paper on which they were written. These large investment banks
tried to make something from nothing, and in their wild pursuit of
bigger and bigger profits, they gambled the stability of our entire
economy. So it is no wonder these systems came crashing down.
Wall Street dropped the ball, and now they are trying to pass the
buck. I refuse to let them do that. I refuse to stand by as these big
firms try to take the government bailout money and escape the
consequences of their action. What they did was irresponsible and
unethical.
My colleagues and I were forced to make difficult decisions to
prevent a complete economic collapse. We did what was necessary to stop
the bleeding and get America back on the road to recovery.
Now it is time to make sure this can never happen again. It is time
we pass financial reform that will make Wall Street accountable again
so they cannot make decisions that undermine our economic security.
That is why I strongly support the bill introduced by my good friend,
the distinguished Senator from Connecticut, Chairman Dodd.
I thank my Republican friends for allowing us to bring it up for
debate. I said on this floor yesterday that the ball game had another
inning, and it did. I am grateful to our Republican friends who said:
Yes, let's put this on the floor and let's debate it.
Let's not debate to debate and then not get on with the business of
average American citizens. As we discuss this legislation in this
Chamber in front of the American people, I hope to work with my
colleagues in both parties to hammer out a comprehensive, bipartisan
bill, a bill that ends the days of the Wall Street casino and
safeguards every American from the kind of reckless behavior that led
to this crisis in the first place. This is the difficult work we swore
to do when we came to this Senate. As we take up the issue of Wall
Street reform, I intend to work with my colleagues, both Democrats and
Republicans, to see that it gets done.
As I said to the Senator from Rhode Island, I am very interested in
his piece of legislation that deals with the credit card interest.
I yield the floor, and I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. WHITEHOUSE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Burris.) Without objection, it is so
ordered.
____________________