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1 1 (December 26, 2024)

handle is hein.crs/goverup0001 and id is 1 raw text is: Informing the Ieg s ative debate since 1914 December 26, 2024 Interest Rate Caps on Credit Cards The 118th Congress has paid attention to the costs associated with credit cards, one of the most popular payment options for consumers today. For example, Congress has debated whether to reform the way credit card swipe fees are processed (S. 1838/H.R. 3881) and to what extent the liability for fraudulent payments should be borne by the customer or the financial institution (H.R. 9303/S. 4943). Another policy discussion pertains to proposed limitations to the interest rates that financial institutions charge for credit card purchases. Interest rates are typically regulated at the state level, but in some circumstances, federal law caps the interest a financial institution can charge. Usury is a term that can refer to charging perceived unreasonably high interest rates or rates in excess of legal limits in cases where such limits are in place. Some policymakers apply this term to rates they think should be capped. Currently, there is no general national cap on interest rates, and a national usury cap would require an act of Congress. Policymakers have previously considered imposing a usury cap that financial institutions can charge on credit cards and other financial products, which would set maximum interest rates or annual percentage rates (APRs). In the 118th Congress, legislation has been introduced that would impose new usury caps on certain products (S. 3549, S. 2730, S. 2760, and S. 1934). President-elect Trump has proposed a temporary cap on credit card interest rates. This In Focus briefly describes the state of the consumer credit card market and discusses policy issues related to credit card interest rates. The Consumer Credit Card Market According to the Federal Reserve, as of 2023, 82% of Americans had credit cards. Americans hold a collective $1.2 trillion of outstanding credit card debt, the fourth- highest category of household debt. On average, cardholders held $5,300 in credit card debt at the end of 2022. In 2022, Americans paid $130 billion in interest and fees toward their credit cards. The top 10 largest credit card companies hold 81% of total credit card outstanding balances. Figure 1 shows the distribution of APRs, by credit score as of 2022 for general purpose credit cards. Consumers with lower creditworthiness generally have higher APRs, while the overall average APR is 19%. Figure I. Average APRs by Credit Score: 2022 General Purpose Credit Cards Source: Consumer Financial Protection Bureau (CFPB). Legs atve Framework for Interest ate Regulation The Truth in Lending Act (TLA, 15 U.S.C. §§1601 et seq) requires creditors to disclose terms and costs of consumer credit. Currently, there is no provision in TILA that caps APRs for most consumer lending. For more on TILA, see CRS In Focus IF12769, Overview of the Truth in Lending Act, by Karl E. Schneider. The Military Lending Act caps APRs at 36% on many consumer credit products for active-duty servicemembers, their spouses, and dependents (10 U.S.C. §987(b)). The Service Civil Relief Act enables active-duty servicemembers to have the interest rates on their credit cards and other forms of consumer debt reduced to 6% during their tours of duty (50 U.S.C. §50). Federal credit unions are typically statutorily restricted to an APR cap of 15%, but such a percentage can be increased in certain circumstances if prevailing interest rate levels threaten the safety and soundness of credit unions (12 U.S.C. §1757). Some proposals in the 118th Congress, outlined in Table 1, aim to create federal APR pricing caps for different consumer products, with two adopting the Military Lending Act standard of 36% and another adopting an APR cap of 18%. Table I. Selected Congressional Proposals for APR Caps: II 8th Congress Bill Credit Type APR Cap S. 3549 All consumer credit 36% S. 2730 Open-end credit 36% S. 2760 Credit cards 18% Average APR 2Deep subprnme 0 to Subprime 0) M Near-prime Prinme U C~n Prnme pius Superprinme Overal 0% 10% 20% 30% 40 40%/

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