By Pam Martens and Russ Martens: January 25, 2023 ~
Yesterday, the federal watchdog agency – the Consumer Financial Protection Bureau (CFPB) – announced that it wants to hear directly from the public on credit card practices. But since “the public” also includes all of the folks that are paid to carry water for the credit card industry, the voice of the average Joe and Jane is highly likely to be overwhelmed by industry sycophants, as is typically the case.
Thus, we are asking our readers to give this matter some careful thought, as we outline below, and if you are so inclined, send your comments to the good folks at the CFPB using this link they have set up. The public has until April 24, 2023 to submit comments but we ask that you do so promptly.
Topic 1: The Same Banks that Were Bailed Out by the U.S. Taxpayers in 2008 with Below-Market Rate Loans as Low as Less than Half of One Percent Are Now Charging those Same Taxpayers as High as 13 to 18 Percent (or Higher) on Credit Cards
A government audit released in July of 2011 showed that the same mega banks on Wall Street that caused the meltdown of the economy in 2008 and the Great Recession were bailed out with cumulative loans from the Federal Reserve totaling more than $16 trillion. (If you add in the bailout programs not covered by the government audit and the dollars swap lines to foreign central banks, the figure comes to a $29 trillion bailout.) The U.S. taxpayer is ultimately on the hook for the debt of the Federal Reserve, so those loans were, indeed, a subsidy from the taxpayer.
A significant part of those Fed loans were made at less than one-half of one percent interest at a time when some of those banks were teetering or insolvent and couldn’t have gotten loans at even double-digit interest rates in the open market.
Three of the recipients of those loans – JPMorgan Chase (parent of Chase Bank), Citigroup (parent of Citibank), and Bank of America – just also happen to currently have the largest market share of the credit card market in terms of balances outstanding, according to the 2022 Nilson Report. But these banks are allowed by the U.S. Congress to currently pay as little as 0.01 percent on the money consumers hold in their money market funds at those banks while the same banks charge double-digit interest rates on their credit cards held by consumers. How is the U.S. consumer ever supposed to get ahead?
This constitutes an enshrined wealth transfer system that is being institutionalized through inaction by Congress. (Also see our 2021 article: Citigroup Has Made a Sap of the Fed: It’s Borrowing at 0.35 % from the Fed While Charging Struggling Consumers 27.4 % on Credit Cards; and our 2022 article: The Apple Credit Card Provided through Goldman Sachs Has Created a Living Hell According to Consumer Complaints.
Topic 2: The U.S. Needs a Federal Cap on Interest Rates Charged on Consumer Credit Cards
In 2019, Senator Bernie Sanders and Congresswoman Alexandria Ocasio-Cortez introduced the ‘‘Loan Shark Prevention Act’’ which would have set a Federal cap of 15 percent on interest rates that could be charged to consumers. (Needless to say, it was immediately attacked by the bank lobby and did not pass.)
In introducing the new legislation, Sanders and Ocasio-Cortez singled out the mega Wall Street banks, writing the following in a white paper they released simultaneously with the proposed legislation:
“Today’s modern-day loan sharks are no longer lurking on street corners, threatening violence to collect their payments. 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, and head financial institutions like JP Morgan Chase, Citigroup, Bank of America, and American Express…
“Despite the fact that banks can borrow money today at less than 2.5 percent from the Federal Reserve, the median credit card interest rate today for consumers is an astounding 21.36 percent…
“Jamie Dimon, the CEO of JP Morgan Chase, is now worth $1.4 billion after his bank got a taxpayer bailout of more than $400 billion during the financial crisis…
“The American people are sick and tired of being ripped off by the same financial institutions that they bailed out ten years ago.”
In their white paper, Sanders and Ocasio-Cortez also explained how the U.S. ended up with such draconian consumer interest rates. They write:
“Establishing a national usury law is not a radical concept. Up until 1978, about half of the states in the country had usury laws on the books capping interest rates on credit cards and other consumer loans. For example, in Alabama, the legal maximum rate of interest was 8 percent. In Alaska it was 10.5 percent. In Arizona it was 10 percent. In Idaho, it was 12 percent. In Kansas, it was 15 percent. In New Mexico it was 15 percent. And, in Vermont, the legal maximum rate of interest was 12 percent.
“But, those state interest-rate caps were obliterated by a 1978 Supreme Court decision (Marquette National Bank v. First of Omaha Service Corp), which concluded that national banks could charge whatever interest rate they wanted if they moved to a state without a usury law. So most of these companies moved to South Dakota or Delaware with no interest rate caps, allowing them to charge people in Vermont or Kansas interest rates of 20 or 30 percent. That is unacceptable. Under this plan, the disastrous Marquette Supreme Court decision would be repealed.”
As the saying goes, “Democracy is not a spectator sport.” If you want a fairer America, you have to engage. We ask that you consider sending your thoughts on these issues to the CFPB, along with any other credit card complaints that you have. We also ask that you forward this article to others you know who are struggling under the weight of credit card debt at high interest rates.