Since the beginning of the year, millions of credit card customers have been hit with higher interest rates -- in many cases from lenders that have received billions of dollars in bailout cash from taxpayers.
Sen. Bernie Sanders, a Vermont independent, responded last week with legislation that would impose a 15% cap on rates for all consumer loans, including plastic.
And you know what? It just might work.
That's because Sanders' bill would trump a 1978 Supreme Court ruling that allowed banks to set credit card rates at whatever their home state allowed. Banks, in turn, high-tailed it to places like South Dakota and Delaware, which abandoned their usury laws to entice financial institutions into setting up shop.
"Every state would have to honor a federal rate cap of 15%," Sanders told me. "It would be a national usury law."
He called after reading columns in which I detailed how Capital One Financial Corp. is raising many cardholders' rates to nearly 18% -- even for people who pay their bills on time and haven't missed any payments.
Meanwhile, Citigroup Inc. has told cardholders their rates could soar to almost 30% if a single payment is missed, and JPMorgan Chase & Co. said it would start charging a $10 monthly fee to those who have carried large balances for more than a couple of years.
Bank of America Corp., Wells Fargo & Co. and American Express Co. are among other major lenders that have notified customers recently of rate increases.
"Everyone has been focusing on the subprime mortgage mess," Sanders said. "I think it's time to focus on these absurd interest rates as well."
Credit card defaults are rising and could hit a record 10% this year. One reason is that so many people got much deeper into debt than they should have.
Another is card issuers keep turning the screws on existing customers -- those with balances they can't just walk away from -- in hopes of raising cash to cover the industry's bad bets in the housing market.
Sanders noted that federally chartered credit unions were limited for years to charging no more than 15% on loans. The National Credit Union Administration raised that cap to 18% in 1987.
"If a rate cap has worked for credit unions all these years, it could work for our friends in the financial industry as well," Sanders said.
Chris Collver, legislative and regulatory analyst for the California Credit Union League, agreed that a rate cap hasn't hurt business for the nearly 400 credit unions represented by his organization.
