Gerard Scimeca – Chairman, CASE
May 15, 2019
Democrats have once again upped the ante in their race to deny tens of millions of Americans access to credit. The latest proposal, courtesy of economic wizards Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez, is to cap credit card interest rates at 15%. It’s yet another proposal that sounds like it favors average Americans struggling to get by, but the cold reality is this proposal picks their pockets like a common thief. Capping interest rates across the board will reduce the supply of credit available, stealing consumers’ ability to access credit while undermining their financial well-being.
Credit card options for consumers are currently beyond plentiful. There are hundreds on the market currently available for all income levels, with interest rates based on a consumer’s financial profile and credit history. It’s an extremely competitive market, which puts pressure on banks and lenders issuing the cards to make interest rates as attractive as possible. Capping the interest rate at 15% — an entirely arbitrary number – won’t hurt the well-off, but average working-class families and start-up businesses seeking to establish a credit history. When a consumer’s income is lower, or they have not established a credit profile (e.g. young people graduating from college or entering the workforce), companies will find it entirely too risky to extend new credit, cutting off those who may need it most.
Just as we learned when an amendment to the Dodd-Frank bill capped debit card charges for customers at retail outlets, government meddling to ostensibly “help” consumers only costs us more. Known as the Durbin amendment, this legislation led to retailers keeping the savings and banks raising fees on other services to make up the difference. But politicians like Bernie Sanders and AOC don’t actually care about the people they claim to represent, their actions are all designed to generate headlines that will praise them for standing up to Wall Street.
With credit card fees capped, fewer consumers will have access to credit, banks will face lost revenue, which they’ll have to regain somewhere, likely through additional fees and fewer services. Consumers who use credit to bridge a monthly shortfall or unexpected expense will be out in the cold, reduced to selling items in pawn shops.
But the heroes of socialism say fear not, because they have a solution: low interest loans from the U.S. Postal Service. That’s right, the lumbering, incredibly inefficient government subsidiary with a customer service rating just a tick above the DMV will now start handing out low-interest consumer credit. As the Wall Street Journal points out this week, the USPS is still getting the hang of delivering mail, with losses of $3.9 billion last year alone. Who will set the interest rates and qualifications to receive unsecured credit? Socialist politicians like Bernie and AOC, of course. Who will pay for the deficits when this venture inevitably runs billions of dollars in losses? Taxpayers, of course.
If the Bernie/AOC 15% cap comes to pass, lots of Americans can say goodbye to cash-back, frequent flyer miles, fraud prevention, merchandise returns, traveler and shopping discounts, and the numerous other benefits that credit cards offer consumers – of all income levels — to stay competitive. With less revenue and a shrinking customer base credit card companies will have no choice but to reduce benefits and services for all but their most affluent customers. It’s yet another terrible proposal from the Democrats in a veritable contest to see who can hurt working-class Americans the most, while grabbing the biggest headlines along the way.
