September 20, 2023

CU trades say credit card bill would hurt consumers

US Capitol buildingNAFCU, CUNA, and the Defense Credit Union Council (DCUC) Tuesday urged the Senate to oppose the effort by Sen. Josh Hawley, R-Mo., to attach his Capping Credit Card Interest Rates Act (S. 2760) as an amendment to a proposed “minibus” appropriations bill.

The legislation would impose government price controls on credit cards by capping their annual percentage rate (APR) at 18 percent. The groups noted that the average credit union credit card interest rate is significantly lower than the statutory limit, but said the cap – which would include all associated fees and penalties in an arbitrary formula – could affect credit unions’ ability to compete with other credit card issuers and could face difficulties supporting a credit card program during periods of high interest rates.

“Proponents of a cap on credit card fees and interest believe that it would help consumers, especially subprime borrowers with less-than-perfect credit histories,” the groups wrote. “In reality, many consumers who currently rely on credit cards would be forced to turn elsewhere for short-term financing needs, including pawn shops, online lenders—or worse—loan sharks, unregulated online lenders, and the black market.

“A credit card rate and fee cap, however calculated, will mean depository institutions like credit unions will be unable to offer these affordable, unsecured small dollar loans. For a loan product like a credit card to be sustainable, depository institutions must be able to recover costs. Costs include not only the cost of funds, but also costs related to compliance, customer service, IT, underwriting, administration, and defaults (including losses),” they added.

The trades also highlighted ways credit unions work with members to support financial well-being, including credit counseling, debt restructuring, loan consolidation, and consumer financial education. They called on Congress to address excessive consumer debt “without creating barriers in accessing safe and affordable credit products, pushing people with marred credit histories and those on the financial fringe to unscrupulous and unregulated lenders, and discouraging future innovation and new products.”

In addition to opposing Hawley’s amendment, NAFCU has also called on credit unions to join its fight against Sen. Roger Marshall’s, R-Kan., effort to attach his big box bailout bill to the minibus. Marshall has threatened to hold up consideration of the minibus until the Senate takes a vote – either as a standalone or amendment – on the Credit Card Competition Act.

NAFCU will continue to advocate against these harmful bills and efforts that could lead to a government shutdown.