Published on Wednesday, November 18, 2009 by The Boston Globe

Push to Curb Credit-Card Rates Fades

Democrats resist consumer outcry

by Michael Kranish

WASHINGTON - Efforts in Congress to cap credit-card interest rates are faltering because of opposition from Democrats and a lack of specific support from the White House, despite growing consumer outrage over a rush by banks to impose rates as high as 30 percent.

A man shows some of his credit cards at a market in Miami, Florida. Amid complaints about interest rate spikes and new fees, US lawmakers have voted overwhelmingly to speed up the implementation of sweeping new rules to guard against abusive practices by credit card companies. (AFP/Getty Images/File/Joe Raedle)

During the 2008 presidential campaign, Barack Obama vowed to back a strict limit on credit-card interest rates. But the White House is not yet behind any particular plan this year. While Obama has chastised credit-card companies, his spokeswoman declined to say this week how he planned to follow through on his campaign pledge.

Obama finds the behavior of credit-card lenders "outrageous'' and "looks forward to reviewing additional legislation that caps interest rates,'' but he has not taken a specific position, spokeswoman Jen Psaki said.

Vice President Joe Biden, whose home state of Delaware is headquarters to many credit-card companies, did not respond to requests for comment.

The Senate soundly defeated legislation in May that was introduced by Senator Bernard Sanders, the Vermont Independent, to cap most credit-card interest rates at 15 percent. Nearly half of the Democratic senators joined Republicans in defeating the measure, 60 to 33.

Consumer groups say the problem of skyrocketing interest rates has only worsened since that vote, as banks scramble to boost rates in advance of a new rule scheduled to take effect in February, requiring banks to give consumers a 45-day advance notice of rate increases.

Sanders said many of the credit cards in the hands of American consumers are issued by four banks that received taxpayer bailout money after last year's economic meltdown: Citigroup, Bank of America, JP Morgan Chase, and Wells Fargo.

"People are disgusted. We bailed these [companies] out and they then had the gumption to raise interest rates on the American people,'' Sanders said in an interview.

Sanders said he plans to reintroduce his proposal to cap rates at 15 percent; he predicted it will have more support this time. (Representing Massachusetts, Senator John F. Kerry supported the cap in May; the late Senator Edward M. Kennedy, who was fighting brain cancer, did not vote. Senator Paul Kirk, who took Kennedy's seat, has not declared a position on the issue, his spokesman said.)

But Sanders faces strong opposition from many Democrats, particularly those who have major credit-card business in their states. One prominent opponent, Senator Thomas R. Carper of Delaware, said in an interview that he understands the anger among consumers who have received letters from credit-card issuers informing them of big rate hikes. But Carper said he opposes any effort to cap the rates because it would hurt the ability of banks to charge higher rates to customers who have a greater risk of default.

"The question is, should banks be able to price for risk?'' Carper said. "In a free market economy, I think they should.''

Carper said that if consumers don't like the credit-card rates, they can pay off their balances and shop for a better rate from another company.

Senator Tim Johnson, a Democrat from South Dakota, another home to credit card companies, explained his vote against credit-card legislation in a May press release. The measure, he said, "could hurt South Dakota jobs and consumers.''

The threat of another vote on Sanders's proposal is prompting companies to make a renewed push against caps. Bill Himpler, executive vice president of the American Financial Services Association, an industry trade group, said it is easy "from a populist standpoint'' to embrace a cap on interest rates. But he said many firms could continue to offer credit if the rate was capped at 15 to 18 percent, as some have suggested.

"You lose money at 18 percent because it is a very labor-intensive business line to offer consumer credit,'' he said. "Where you cap rates you end up having credit tightened and the cost of credit being greater for the consumer.''

The Consumer Federation of America, which worked to pass the 45-day advance notice requirement on rate hikes that takes effect in February, said it has not taken a position on the Sanders proposal.

"We want to give the law a little time to work,'' legislative director Travis Plunkett said yesterday. He warned that the federation would closely monitor to see if credit-card companies stop "the most abusive practices.''

Senate Finance Committee chairman Christopher Dodd of Connecticut, who supported the 15 percent cap, has proposed legislation that would temporarily freeze certain interest rates, but only until February when the notification law takes effect.

For decades, many states had usury laws capping credit-card interest rates as low as 6 percent. But those rules were upended in 1978 by a Supreme Court ruling that a national lending company based in a state without a rate cap could charge any rate to customers who lived in a state with a cap. As a result, many credit card companies moved to states with lenient rules such as Delaware and South Dakota.

Biden, who served as Delaware's US senator from 1973 until last January, has long been noted for his ties to the credit-card business. Biden's top contributor has been MBNA Corp., a company based in Delaware that was a major credit-card issuer and was bought by Bank of America in 2005.

Biden received $214,000 during his Senate career from MBNA-related donors, according to the nonpartisan Center for Responsive Politics.

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