Freshman Congresswoman Alexandria Ocasio-Cortez partnered with Vermont Senator and Democratic presidential hopeful Bernie Sanders announced her first major bill on Thursday, The Intercept reports. The bill, known as the Loan Shark Prevention Act, would rein in lenders who charge high interest fees to consumers or use fees and other means to avoid existing interest rate caps on lending.
The bill would create a 15 percent interest rate cap on all consumer loans, establish penalties for finance law violations, and introduce a provision in which all interest would be forfeited by banks who issue illegal loans.
“Today’s loan sharks wear expensive suits and work on Wall Street, where they make hundreds of millions of dollars in total compensation by charging sky-high fees and usurious interest rates,” said Ocasio-Cortez and Sanders in a written statement that accompanied the release of the plan.
Sanders has long supported the interest cap, also known as a usury cap, having made such a provision a key component of his agenda as both a Senator and a presidential candidate. In 2009, Sanders introduced similar legislation, which focused only on credit cards before expanding his approach to include all consumer lending in an updated version in 2016.
A new rate cap would essentially nullify a 1978 Supreme Court ruling, Marquette National Bank v. First of Omaha Service Corp, which determined that it was the home state of the bank, not the location of the borrower, that determined which laws applied when it came to rate caps. The decision revolutionized the lending industry, as banks could now set up shop in states friendly to their desired higher rates while doing business with consumers across the country.
“Today’s loan sharks wear expensive suits and work on Wall Street, where they make hundreds of millions of dollars in total compensation by charging sky-high fees and usurious interest rates,” @RepAOC and @SenSanders on The Loan Shark Prevention Act https://t.co/bucRF2cJKg
— People for Bernie (@People4Bernie) May 9, 2019
Currently, credit card interest rates typically range between 15 and 23 percent, with some cards skewing even higher. Meanwhile, the banks issuing the cards are able to borrow money from the Federal Reserve at a rate of just 2.5 percent. In addition to curtailing the high credit card interest rates, the Loan Shark Prevention Act would effectively end the payday loan industry, where short-term loans for relatively low amounts can carry rates that amount to more than 600 percent.
As an alternative to such lenders, Ocasio-Cortez and Sanders have proposed postal lending, referring to simple loans issued through the existing network of post offices.
“We must make sure that giant Wall Street financial institutions are not the only way Americans can gain access to banking services,” the two said in their statement. “Together, we are going to put predatory lenders out of business and provide affordable banking options to all Americans.”