Bill would put cap on interest rates

It’s one of the most common consumer complaints that Attorney General Patrick C. Lynch’s office gets, spokesman Michael Healy says: Credit card interest rates in the mid-20s and -30s, so high that people can’t possibly get out of debt – usurious by many standards.
State law forbids interest rates greater than 21 percent or, alternately, prime plus 9 percent, for almost all loans. The only exceptions are credit cards and loans by licensed pawnbrokers.
Now there is a chance that might change, at least for customers of a few local banks. Last month, by a vote of 54 to 5, the R.I. House of Representatives passed legislation introduced at Lynch’s request that would eliminate the exception for credit cards.
The measure has been referred to the Senate Corporations Committee, which already has considered a similar bill and set it aside for further study.
“We need to stop these credit card companies from hurting people’s lives,” said the House bill’s sponsor, Rep. Brian Patrick Kennedy, D-Hopkinton, in a statement. “Some credit card companies are charging interest rates of 30 percent or more. Sometimes government has to regulate business to protect people from being victimized.”
Lynch, for his part, had said in a statement earlier this year that “it’s time to put a stop to the ‘carte blanche’ environment enjoyed by banks and other lending institutions that enables them to charge exorbitant and usurious credit card rates to Rhode Island residents.”
He had also noted that while high credit card rates affect people at all income levels, they particularly affect “hard-working Rhode Island families and the economically poor.”
But even if the legislation makes it through the Senate – and Healy said it’s unclear what the prospects are – it could have very limited impact. That’s because the state can only cap the interest rates charged by financial institutions chartered in the state.
Only 11 banks and 11 credit unions active in Rhode Island are chartered by the state, and most of them – Bank Rhode Island, The Washington Trust Co., Dexter Credit Union, etc. – don’t issue their own credit cards, but instead go through a third party.
Based on a spot check with multiple institutions, the only bank Providence Business News could find that would definitely be affected is Citizens Bank, which formerly outsourced all its credit cards, but since 2004 has been issuing its own in relatively small numbers.
A Citizens spokeswoman declined to comment for this story, however, saying that the bank was still reviewing the legislation and didn’t know yet how it would be affected.
When the House Committee on Corporations heard the bill this spring, said Kennedy – who chairs the committee – only the attorney general’s office provided testimony.
According to Bankrate.com, a consumer-oriented financial Web site, only about half the states cap credit card interest rates. And in 1978, the U.S. Supreme Court ruled in Marquette vs. First Omaha Service Corp. that a bank could charge the highest interest rate allowed in its home state to consumers living anywhere in the country.
Most credit card issuers are based in states without caps, such as Delaware and South Dakota, so they can essentially charge what they wish, as long as customers are forewarned.
Healey said he does not know whether credit cards issued through a Rhode Island institution by an out-of-state bank would be affected by the legislation, and that’s one of the questions that will have to be resolved. But Lynch’s priority, he said, was to start a conversation on this issue, because it’s so important for consumers.
Joee Lindbeck, a special assistant attorney general who is handling the legislation, said even if only a handful of institutions were affected by the legislation, it would be a good start.
“It’s basically just giving the consumer more consumer-friendly options,” she said.
Lindbeck said there has been some criticism that this bill will hurt Rhode Island-chartered businesses, but she said the bill gives average consumers a “clear choice” for their economic well-being by choosing a financial institution that is subject to the cap.
“We are of the opinion that it will actually create a lively marketplace where the consumers can make the choice,” she said.
Kennedy took a similar view.
“Hopefully, you are going to find Rhode Islanders who are going to say, ‘You know what, I do banking business with either this bank or credit union. Maybe it makes good sense for me to have their credit card as well, because I know this is the most that they can charge me in interest. … Worst case scenario, if everything goes bad, the most they are going to be able to charge me is 21 percent.’”

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