“AOC teams up with Florida Republican Rep. Anna Paulina Luna for bill capping credit card interest at 10%”
These two Millennials have joined other sufferers of Dunning-Kruger Syndrome in lacking sufficient intelligence to understand how dumb this idea is. You can confirm that by looking at the other misguided legislators who have climbed aboard this stuck-in-the-ditch bandwagon. Examples are cited in the quoted article.
Usury laws have a long and checkered history, mostly at the State level. Nearly every jurisdiction which has imposed some form of interest cap has found the same result: The people they are trying to protect against “extortionate” interest rates end up losing access to credit completely. Currently, only a handful of States have usury laws to restrict the interest charged on loans of all types. That includes high-interest payday and title loans, which are typically made to high-risk customers.
If lenders (both federally regulated financial institutions and others) lose money lending to less credit-worthy borrowers, they won’t extend credit at all.
And there’s the conundrum: the only way to adjust the risk of losing a loan is to adjust the interest rate. The lower the likelihood of repayment, the higher the interest rate must be. That impact is greatest on less credit-worthy borrowers. And the cycle continues.
So what is the solution?
There may be others, but our preferred approach would be to enforce the antitrust laws — and that includes both regulatory and prosecutorial means. Over the past 40 years, lax antitrust enforcement has led to consolidation of the banking industry. Without going into a lengthy study, let us just mention that in 1980 there were about 15,000 commercial banks and nearly 5000 savings institutions. Today there are no S&Ls of consequence and only about 4500 commercial banking organizations.
Under the consolidation trend, it’s no wonder that there is gouging going on in the credit card and general banking business!
But please, the ignorant activist approach of capping interest rates, even though bipartisan, just doesn’t work.
Quoting the late, great Carl Perkins: “You got the right string, baby, but the wrong yoyo!” For those yet to have heard this Rockabilly musician, you can find his song on YouTube https://www.youtube.com/watch?v=0K6nCOoeJbA
Today’s Molière Citation goes jointly to Representatives Alexandria Ocasio-Cortez (D-NY) and Anna Paulina Luna (R., FL) for dredging up this crack-brained phony proposal from the dustbin of history.
We reserve the right to amend this Citation in the event that other well-meaning but ignorant legislators sign on as co-sponsors.