Today’s modern day loan sharks are no longer lurking on street corners or hiding in alleys breaking knee caps to collect their payments. They now make hundreds of millions of dollars in total compensation by charging sky high fees and usurious interest rates and head banks like MBNA, CitiGroup, and Capital One.
For the fifth consecutive year, the credit card industry posted record breaking profits totaling more than $30 billion, an increase of 144% over the last decade. How did they do it? Credit card companies collected $21.5 billion in fees last year compared to only $7.3 billion in 1994. Revenue from late fees has jumped from $1.7 billion in 1996 to an amazing $11.7 billion today. Over the past eight years, late fees have risen from $10 to as high as $39. Experts are predicting that late fees could balloon to as high as $50 this year. Most credit card companies used to give consumers two weeks notice before imposing late fees. Today, if consumers are even 1 hour late on credit card bills they will get slapped with as much as a $39 late fee, and a penalty interest rate of as high as 29%.
Unlike mortgage rates, there is no such thing as a fixed credit card interest rate, despite highly deceptive marketing by the credit card industry. In the fine print of most applications, credit card companies can raise interest rates at any time for any reason.
While credit card companies are ripping off the middle-class, the CEOs are laughing all the way to the bank. Over the last five years, the CEO of Citigroup made more than $500 million in total compensation and the CEO of Capital One made more than $169 million in total compensation. In 2002 alone, the top four executives at credit card giant MBNA made more than $300 million in total compensation.
These modern day loan sharks must be reigned in. Therefore, I will be introducing the Loan Shark Prevention Act to protect consumers against predatory lending. Specifically, this legislation would:
1. Cap interest rates at 8% above what the IRS charges income tax deadbeats. Currently, the cap would be 14%, the same level that the Senate approved by a 74-19 vote in an amendment offered by Sen. Al D’Amato in 1991.
2. Cap bank and credit card fees at $15. The notion that late fees could climb to $50 is obscene.
3. Ban the credit card interest rate bait and switch. Credit card companies are doubling or tripling the interest rates of consumers even though they always paid their credit card bills on-time. The reason? Maybe they were one day late on a student loan payment three years ago. Maybe they took out another loan for a medical emergency. Or maybe they did nothing wrong at all. Today, credit card companies can raise rates for any time for any reason. This must stop.
Loan-sharking is an odious practice whether it is performed by street corner thugs or the CEOs of large banks. Charging economically vulnerable Americans outrageous interest rates and fees is simply not acceptable and, amid all of the recent political discussion over "values," this certainly does not constitute "moral" behavior. The time is long overdue for Congress and the White House to stand up for American consumers. The time has come to pass the Loan Shark Prevention Act.
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