On Thursday, Vermont Sen. Bernie Sanders and New York Democratic Rep. Alexandria Ocasio-Cortez unveiled the Loan Shark Prevention Act in a Facebook livestream video. The newly released joint legislation aims to tackle credit card and consumer loan interest rates, as well as help Americans pay off their debt at a reasonable rate.
For years now, Sanders has vocalized support for the idea that there ought to be a 15% cap on interest rates for consumer loans. If carried out successfully, this rate could help millions of Americans pay off mountainous amounts of debt accrued on their credit cards, as Forbes noted in 2018. According to ThinkProgress, the legislation says that the average yearly interest rate on credit cards has shot up to 18% and that some credit card companies charge rates up to 27%.
With the help of Sanders and Ocasio Cortez's bill, lenders will be prohibited from lumping extra fees on the interest rate — and punished with a forfeiture of interest on illegal loans in the case of any violation. According to The Intercept, Sanders and Ocasio-Cortez said in a joint statement:
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.
According to The Hill, Ocasio-Cortez's communications team reinforced the message behind the joint legislation with Sanders. The Loan Shark Prevention Act would end up "lowering the credit card rates of millions of Americans, and functionally destroying the predatory 'payday' loan industry," Ocasio-Cortez's team said in an email, per The Hill.
According to Consumer.gov, a payday loan is a loan given for a short amount of time. The general idea is that the borrower will pay off the loan upon receiving their next paycheck, but these loans can end up becoming very expensive due to the interest rates applied to them. As CNBC reported in 2018, payday loans are a lucrative $9 billion industry.
Nick Bourke, who is the director of consumer finance for the nonprofit organization Pew Charitable Trust, told CNBC that year, "It's normal to get caught in a payday loan because that's the only way the business model works."
"A lender isn't profitable until the customer has renewed or re-borrowed the loan somewhere between four and eight times," Bourke added.
On Twitter, both Sanders and Ocasio-Cortez praised their measure taking aim at consumer loan interest rates. The New York progressive Democrat tweeted about the Loan Shark Prevention Act was a "common sense" strategy to tackle American consumer debt.
No stranger to demanding economic justice, Ocasio-Cortez made similar headlines in April when she grilled the CEOs of some major banks about the 2007 financial crisis. The Democrat, who is a member of the House Financial Services Committee, asked whether people involved in the recession should be sent to jail, The Hill reported. On Thursday, Ocasio-Cortez took on a similarly passionate tone.
Sky-high consumer loan interest rates are a "debt trap for working people," the Democrat said. "It has to end."