[Congressional Record Volume 159, Number 93 (Wednesday, June 26, 2013)]
[Senate]
[Pages S5268-S5269]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WHITEHOUSE (for himself and Ms. Warren):
  S. 1229. A bill to amend the Truth in Lending Act to empower the 
States to set the maximum annual percentage rates applicable to 
consumer credit transactions, and for other purposes; to the Committee 
on Banking, Housing, and Urban Affairs.
  Mr. WHITEHOUSE. Mr. President, I am very pleased to be joined on the 
floor of the Senate by Senator Warren to introduce legislation we have 
been working on since 2008.
  Astute observers of this body will recognize that was before Senator 
Warren was even Senator Warren. She has been, for years, a renowned 
expert in consumer law and a leading advocate of reforms to protect 
families from predatory lending. It has been a pleasure working with 
her on this bill, and I am delighted to be working with her as Senate 
colleagues now.
  A little history. During President Obama's first 2 years in office 
and before the Republicans took control of the House in 2011, Democrats 
passed two significant landmark bills to protect ordinary consumers 
from credit card company abuses.
  The Credit CARD Act of 2009 outlawed some of the worst tricks and 
traps that lenders used to squeeze money out of their customers. After 
that law, big banks can no longer hike interest rates on preexisting 
balances just because they feel like it, and they can no longer declare 
that the day ends at lunchtime in order to impose late fees on payments 
that arrive in the afternoon. As absurd as it sounds, credit card 
companies routinely engage in those sort of shenanigans, but the Credit 
CARD Act of 2009 put an end to a lot of it.
  A second bill, the Dodd-Frank Wall Street Reform Act, established the 
Consumer Financial Protection Bureau, an essential agency first 
proposed by Senator Warren when she was a law professor. That body will 
be for mortgages and credit cards what the Consumer Product Safety 
Commission is

[[Page S5269]]

for toasters and swimming pools. In an age when the fine print in a 
financial agreement can be the door to a family bankruptcy, this new 
agency is long overdue.
  While the Consumer Financial Protection Board is working to protect 
American families from many types of unfair and deceptive financial 
practices, including ones that involve credit card fees, the Board is 
barred from regulating credit card interest rates. In the final 
negotiations on Dodd-Frank, the allies of the big credit card companies 
kept interest rates beyond the reach of this consumer agency.
  That is a shame, because unfair interest rates are a big problem for 
families in Rhode Island and across the Nation. I have heard from so 
many constituents enticed to sign up for a credit card with an 
attractive teaser rate of 0 or 1 percent, and eventually the teaser 
period ends and the rate goes up to 12 or 15 percent, and if the 
cardholder slips up and misses a couple of payments, the rate can jump 
to 30 percent or higher.
  I think when most of us in this body were growing up, a 30-percent 
interest rate was a matter you could usually take to the police because 
it violated State law. A rate at 30 percent would have been illegal 
under the laws of most, if not all, of the 50 States. But the Supreme 
Court in 1978 ruled the Civil War-era National Bank Act only required a 
lender, the credit card issuer, to abide by the law of the State that 
is their home State and allowed them to ignore the law of the State 
their customer called their home State. Well, it didn't take too long 
for the big credit card companies to see the loophole. This meant if 
they moved their legal home to States with no interest rate limits, 
with lousy consumer protections, even dealing with those States to 
reduce consumer protections as a consequence of moving there, well, 
from these new havens they could lend to people in all 50 States at any 
interest rate they wanted.
  Since that Supreme Court decision, which is called the Marquette 
ruling, high interest rate credit cards have mushroomed and consumer 
debt has soared. According to the Federal Reserve, in the year before 
the Marquette decision, 1977, only 38 percent of families had a bank-
issued credit card. By 2010, over 65 percent had credit cards, with 
about one-third of all families holding four or more credit cards. And 
the debt numbers coming off those credit cards are even worse. 
Revolving consumer debt, which is mainly credit card debt, has exploded 
over twentyfold in the 35 years since the Marquette decision. This 
little bull's-eye represents the debt beforehand, the giant red circle 
the debt afterward.
  The credit card companies are taking full advantage. Interest rates, 
as we know, are generally low right now. Banks are lending to one 
another at less than one-quarter of 1 percent, and 30-year fixed 
mortgage rates are near 4 percent. Savings bonds pay a paltry 1 
percent. The Stafford loans we are discussing will move from 3.4 
percent to 6.8 percent if we don't act. But credit cards? According to 
bankrate.com, which tracks lending statistics, the average variable 
rate credit card now charges over 15 percent, and many consumers pay 
much higher rates.
  At 15-percent interest, it would take a family, paying the monthly 
minimum, which is often equal to 1 percent of the balance plus the 
accrued interest, more than 22 years to pay off a $5,000 balance. An 
emergency comes to your family, and you need to go to your credit card 
to pay for it, so you have to run up $5,000. It will take you 22 years 
to dig out from that at a 15-percent rate. Over those 20 years, the 
total you would pay would be almost $11,000, meaning interest rate 
charges would be more than the actual balance you owe. That is bad 
enough, but imagine a family paying 30 percent. For them, it is much 
worse. It would take 25 years to pay off a $5,000 balance making 
minimum payments, and the total payments the family would have to make 
would add up to $17,000, more than the original $5,000 that was 
borrowed.
  Families may turn to credit cards in times of emergency, and then, 
when they get back on their feet, find the next quarter of a century 
dedicated to paying off that debt. We should act to ensure that 
families don't suffer lost decades to unnecessarily--and what would 
once have been illegally--high interest rates.
  The bill we introduce today, the Restoring States' Rights to Protect 
Consumers Act, would not set a Federal interest rate cap but it would 
restore to our sovereign 50 States their historic right--a right that 
dated back to their status as colonies before the Revolution--to 
determine what interest rate limits should apply and protect their own 
citizens. This bill is 2 pages long. It is simple. It is a States 
rights bill. It received bipartisan support when I offered it as an 
amendment to the Dodd-Frank bill, and I hope Senators of both parties 
will consider supporting it now.
  I will now yield the floor to my lead cosponsor, Senator Warren of 
Massachusetts, with my thanks to her for her leadership in protecting 
American consumers and for her help in drafting this measure. It is a 
privilege to serve with Senator Warren in the Senate.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Ms. WARREN. Mr. President, I want to start by commending Senator 
Whitehouse for his extraordinary leadership. For 5 years he has worked 
on this issue. He proved from the very beginning that he was open to 
consumer groups that came to talk to him about a problem, and he has 
been committed to helping working families and that has been his 
central goal. It is a great honor to stand this afternoon with Senator 
Whitehouse and to talk about a bill that can advance that goal--helping 
working families.
  For more than two centuries a State could pass a usury law and 
enforce it against anyone who was lending money in the State. Congress 
and Federal agencies played a central role in our banking policies, but 
our system allowed States to play an important role too. The States 
decided locally what were the highest interest rates they wanted their 
citizens to be charged. We honored the traditions of federalism, and 
things worked pretty well. The States protected their citizens. 
Consumer financial products, such as credit cards, were easy to 
understand and they were safe for consumers. They were not loaded with 
tricks and traps.
  That changed starting in 1978, when the Supreme Court issued its 
decision in Marquette National Bank of Minneapolis v. First of Omaha 
Service Corp. In that decision, the Court interpreted a banking law 
that Congress had passed back in 1863, and they decided the statute 
meant the States could not keep an out-of-State lender from charging 
high rates within the State.
  That all sounds pretty technical, but the result was that credit card 
companies flocked to move their headquarters to States that had little 
consumer protection. Then other States raced to the bottom, repealing 
their consumer protection laws, hoping to attract more business to 
their State. The basic idea that States could protect their citizens 
from whatever tricks or traps the banks wanted to try simply 
disappeared.
  So I rise today to join my colleague from Rhode Island, Senator 
Whitehouse, to introduce the Empowering States' Rights to Protect 
Consumers Act. This bill will restore the ability of States to enforce 
their own rules against all lenders that do business within the State. 
It does not tell States what rules to put in place, it lets States 
decide for themselves.
  The Credit CARD Act, enacted in 2009, and the new Consumer Financial 
Protection Bureau, created by the Dodd-Frank act in 2010, were critical 
steps in the right direction, and they are doing a good deal to help 
protect consumers. But we need to recognize the value of State 
partnerships by empowering our States to play a role too and by 
restoring their ability to serve as a laboratory of democracy. If and 
when credit card companies develop the next generation of tricks and 
traps, buried in fine print and legalese, States ought to be able to 
respond with their own rules and protections if they deem it necessary.
  I ask my colleagues to carefully consider this bill.
  I again thank Senator Whitehouse for his extraordinary leadership on 
this. It is a great honor to stand today and cosponsor this bill with 
him.
                                 ______