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1 [1] (Updated May 22, 2025)

handle is hein.crs/iterrtcs0001 and id is 1 raw text is: Congressional Research Service IeInforring the legislative debate since 1914 Interest Rate Caps on Credit Cards Updated May 22, 2025 Congress has paid attention to the costs associated with credit cards, one of the most popular payment options for consumers today. For example, the 118th Congress 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. In the 119th Congress, bicameral legislation, S. 381 and H.R. 1944, would cap credit card annual percentage rates at 10%. 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. 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. The share of balance 90-plus days delinquent for credit cards has increased from a recent low of 7.6% in third quarter 2022 to 11.4% in fourth quarter 2024, the highest rate since 2014. This statistic includes severely derogatory debt, such as charge-offs. These delinquencies were concentrated among subprime borrowers. In response to these delinquencies, a Federal Reserve survey indicated that more banks tightened their underwriting standards for credit cards. 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 1. Average APRs by Credit Score: 2022 General Purpose Credit Cards Source: Consumer Financial Protection Bureau (CFPB). Legislative Framework for Interest Rate Regulation The Truth in Lending Act (TILA, 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. Part of Dodd-Frank (12 U.S.C. §5517) limits the CFPB from imposing usury limits ... unless explicitly authorized by law. 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 cap can be increased in certain circumstances if prevailing interest rate levels threaten the safety and soundness of credit unions (12 U.S.C. §1757). State laws determine any applicable interest rate limits on bank credit cards based on financial institutions' headquarters, and it does not matter where a consumer resides. Currently, many credit card companies are based in either Delaware or South Dakota due to their specific usury laws. This applies to banks as well as nonbanks as a result of a recent Office of the Comptroller of the Currency rule. For more on this rule, see CRS Legal Sidebar LSB10512, Federal Banking Regulator Finalizes Rule on State Usury Laws, by Jay B. Sykes. S. 381 and H.R. 1944 would cap credit card APRs at 10%. If a credit card company violates these provisions, it would ittps://crsrepo rts~congress. go Average APR Deep subprirne bo Subprime M Ne ar-prime Prime 0 cn Prime pius v Superprire Over Il 0% 10% 20% 30% 4 40%.~

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