Legislation to cap credit card interest rates at 10% is moving through Congress — and if it passes, millions of Americans who rely on credit cards will lose access to them.
What is sold as consumer protection is in reality government price-fixing that will force lenders to deny credit to the borrowers who need it most, push small businesses toward costlier financing, and drive low-income Americans toward the unregulated lenders the bill claims to protect them from. This idea has been tried before and failed. It is a longtime progressive priority now picking up populist support on the right, and that bipartisan momentum makes it more dangerous, not more credible.
Capping credit card rates is an idea long embraced by the hard left. Independent Vermont Sen. Bernie Sanders, who is a socialist, Democratic Oregon Sen. Jeff Merkley, and Democratic New York Sen. Kirsten Gillibrand introduced legislation in the Senate to cap credit card interest rates at 10%.
In the House, self-proclaimed Democratic New York Socialist Rep. Alexandria Ocasio-Cortez is leading the effort in the House. Some populist Republicans have joined these pieces of legislation; despite the fact this idea is a long-term goal of the progressive agenda. If there is any more evidence you need that this idea is embraced by the hard left, look no more at the two socialists leading the effort to cap access to credit for many Americans by price fixing a credit card rate.
The arguments for rate caps suggest that no Republican should support this idea. Ocasio-Cortez claims high-interest credit cards trap working people in endless debt, proposing government-set rates to prevent lending to those most in need. Sanders, in introducing his “Loan Shark Prevention Act,” pointed out that today’s loan sharks wear suits and operate on Wall Street, earning hundreds of millions and leading major banks like JPMorgan Chase, Citigroup, Bank of America, and American Express. The hostility toward banks helping Americans access credit reflects socialist belief that government officials know better than CEOs and shareholders how to run a free market economy.
This is a terrible idea, and Republicans should abandon progressive ideas on price fixing rates. The result of a cap will limit credit while forcing credit card companies to deny credit to many in need. Small businesses will suffer because they rely on credit cards to keep their business alive. The great irony is that the people who will be hurt by the cap will end up going to actual loan sharks to unregulated loan entities to get access to credit and you can guarantee that their rates will be far more than 10%.
Small businesses in America are struggling, and the last thing they need is another hurdle to conduct business. Metlife and the U.S. Chamber of Commerce put out a report that shows “credit cards—alongside local banks and credit unions—remain among the top financing tools for small businesses. From buying inventory to equipment repairs and grocery purchases, credit cards keep small businesses and families running.” Small businesses need access to credit that will be cut off or limited under the Sanders plan.
Actual small business owners argue that this cap is harmful. The U.S. Hispanic Business Council conducted a survey and found that one Texas restaurant owner said “being able to buy inventory [with my credit card] upfront and pay it off as revenue came in kept my doors open during uncertain months.”
A California retailer said, “when supply costs jumped, my credit card gave me flexibility to restock without cutting hours or wages.” A Maryland small business owner pointed out that “securing a business credit card was a crucial step in her business’ creation as she felt it offered her additional financial stability and resources for business expansion.” Harming small business will result if progressives, and some Republicans, have their way.
Some Republicans have embraced a populist stance to reach out to traditional Democrat voters. The big problem with this idea is that it is a solution in search of a problem. Supporters demonize credit card companies because they trust government more than they trust the free market to provide solutions. The rub is that this idea will actually hurt the very people that supporters of credit card rate caps want to help – low-income Americans and struggling small businesses.
Republicans should block this terrible idea and trust the private sector to provide for those in need. This will avoid more unemployed Americans who will have to resort to government, taxpayer funded aid, when this idea puts them out of work or denies them cash they need to pay bills.
Leif Larson is a noted strategist with 20 years of experience in PR, public affairs and politics. He has contributed to the success of prominent political, corporate and advocacy groups across the country throughout his career.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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