The challenge of interest rates on the credit card begins to look like a hot idea of the season’s policy for populist legislators on the left and right.
This month, Rev. Alexandria father-Cortez, a progressive star from New York, and Ambassador Anna Paulina Luna, Favorit Magorite of Florida, joined herself Introduce an account To limit APRS Credit Card to 10%. The following is a similar legislation from SENS. Bernie Sanders, independent of Vermont, and Republican Josh Hawley of Missouri, who would establish the same upper limit of 10% rate Five years.
The cost of the loan has become an even burning problem in recent years thanks to growing interest, which helped in fuel Increase in delinquency: Average April was about 21.5% at the end of last year, compared to 14.7% in 2020according to the federal reserves.
For now, it seems that these accounts are mostly political signaling exercises that are unlikely to go anywhere. Democrats can also consider them a way of causing President Trump to do good in their season of the campaign season to forward the limit of a credit card, an idea that has been mostly accepted in the past. (In 2019, Sanders and Fatherly-Cortez discovered the Law on Shark Prevention, which would have had imposed a limit of 15% on all interest rates.)
But two -sided enthusiasm suggests that limiting card issuers can charge their customers to have their feet down. For many voters, this is a burning care for the pocket books: approximately half Credit card accounts Turn the balance from month to month, while 13% of card owners execute only the minimum payment of maturity, according to Consumer Protection Office.
Read more: Can you ask a credit card company for a lower April?
As they increased interest rates, a credit card company ‘ margins hit the top heights. To some, this is a sign that companies could profitably borrow most of their customers, even if the rate limit is slightly reduced to their profit.
The challenge, as almost any economist will note, is that it will limit the rates of probably less approach to a loan for Americans with weaker credit results, because borrowing will not be so profitable.
This could be the best for some households if it saves them from excessive riding. But many could be forced to resort to other, even less affordable types of debt to cover emergency costs. And even without the help of a Credit Card of High April, some still find ways to make inaccessible purchases on credit, such as Buy Now, pay for later plans.
The question is how low it is too low before the limitations do more harm than benefits. A 10% rate can be excessively strict. But what about a 25% limit? Or 35%?
“At the end of the day, it’s a compromise,” said Breno Brago, an older associate of the Urban Institute who studied the influence of the captain. “You want to maximize the number of people who benefit from it and minimize the number of people suffering from it.”
Lemor laws are nothing new. At least 76 countries impose limitations for loan, According to the World Bank Researchersand at least 26 decided to put restrictions on all kinds of loans. In the US, in Dozens of states Set the restrictions on the lender on the salary or try to ban them directly.
Studies on the impact of loan limitations for payment have given conflicting results. Some discovered that Proper rules By encouraging customers to rely on other, expensive and less regulated types of loans, such as banks overrun, without improving their entire finances. Others suggest Laws reduce the use of a salary loan without these defects.
Read more: Buy now, pay later with your credit cards: which one should you use for your next purchase?
What would happen if the government tried to limit what Visa or Mastercard could charge? In the US, there is at least one recent example from the real world that we can draw conclusions referred to in: Act on Military Communion, which originally limited interest rates on salaries and other loans for members of the active service in the amount of 36%. In 2015, the law was expanded to cover rotating products such as credit cards.
Change had a rather limited impact on hull wallets, according to on paper Braga and his colleagues in Urban. A 36% limit seemed to affect the credit for people in the military community that had the results of the Subprime loan, but did not even improve their finances, measured by factors such as the rates of delinquency or debts entering the collections.
Absolutely more risky boring seems to have felt more change. After the reform came, people with Vantage credit results below 500 were less likely to have a credit card and recorded their borrowing limit. At the same time, their credit ratings and delinquency rates have not improved, suggesting that the group has lost access to the loan without great benefit.
One of the reasons that 36% limit may have had a lot of effect in the overall general is that during the period of time, relatively few people had credit cards with APR above 36%. Today, with higher rates, the influence could be wider.
CAP Father-Cortez and Luna have been proposed much stronger, and will probably interrupt access to the loan by millions of more. Even among the loans of superprises with credit ratings above 720, the average APR are usually greater than 10%. There is also concern that companies could try to suppress serious limit by charging new fees, although the account is trying to ban it.
Still, it is possible to imagine the loose limits that create something in Washington.
For example, in 2019 double -sided account This would expand the limit of the military loan rate for all Americans, almost reported outside the committee, but pandemic demolished it. Politically, such an account could one day be ready to return.
Jordan Weissmann is an older journalist at Yahoo Finance.
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