U.S. Senators Sheldon Whitehouse (D-RI) and Elizabeth Warren (D-MA) today introduced the Empowering States' Rights to Protect Consumers Act, a bill that would protect consumers by restoring the ability of states to set limits on credit card and other consumer loan interest rates. Whitehouse has introduced similar legislation in past Congresses.
"It's time to stop Wall Street banks and their credit card subsidiaries from taking advantage of struggling families in Rhode Island and across the nation," said Whitehouse. "This legislation would restore historic, long-standing states' rights to protect consumers from improperly high interest rates."
"We need to ensure states have the ability to enforce their own rules against lenders doing business within their borders," said Warren. "States should be empowered to take action to protect consumers from tricks and traps buried in the fine print by credit card companies."
For more than 200 years, each state had the ability enforce usury laws against any lender doing business with its citizens. In 1978, a Supreme Court case, Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, determined that national banks are bound only by the lending laws of the state in which the bank or its credit card subsidiary is based, rendering states powerless to impose lending restrictions against a lender headquartered in a different state.
This decision effectively ended usury protections in the United States and gave large lenders an incentive to locate in states with weak or non-existent consumer lending protections. Without these protections, many consumers now get stuck with interest rates as high as 30 percent or more.
Whitehouse and Warren's bill would amend the Truth in Lending Act of 1968 to clarify that all consumer lenders--regardless of their location or legal structure--must abide by the interest rate limits of the states in which their customers reside. Rhode Island, for example, had a state-level interest-rate cap for many years, but abandoned the cap after the Marquette decision rendered it moot. The Empowering States' Rights to Protect Consumers Act would allow Rhode Island to re-instate a cap.