Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, the two most well-known democratic socialists in Congress, joined forces to introduce a major piece of legislation on Thursday. The Loan Shark Prevention Act would cap credit-card interest rates at 15 percent, reducing those rates back to their 1980 levels. The Federal Reserve would have the ability to raise rates above 15 percent for a period of 18 months, but only to preserve the “safety and soundness of financial institutions,” according to the Daily Beast. Though the bill is a nonstarter as long as Republicans control the Senate, it’s a useful glimpse into Ocasio-Cortez’s development as a lawmaker and Sanders’s priorities as a presidential candidate.
The bill’s broader aim is to protect low-income people from predatory financial practices. It’s often difficult for low-income people to access credit at all, and when they do, they’re more likely to have poor credit and to take out subprime credit cards with high interest rates. Struggling families often bear higher-than-average debt burdens, too, as they take on more debt to keep up with costs of living that have far outpaced wage growth. “About 1 in 5 American families who make $41,200 or less have what’s considered a hefty debt burden — defined as more than 40% debt-to-income load,” CNN reported in 2015, drawing from a Morgan Stanley Institute study. And while wealthier households can afford to pay down credit cards quickly, lower-income households struggle to do so and can trap themselves further and further into debt. As Gary Rivlin noted in a 2014 piece for the Daily Beast, it’s expensive to be poor.
In addition to capping interest rates, Sanders and Ocasio-Cortez propose a system of postal banking, which would undercut the predatory payday-lending industry by authorizing the U.S. Postal Service to provide basic banking services. Individuals would be able to open checking and savings accounts and apply for low-interest loans through the postal service. Sanders isn’t the only 2020 hopeful to endorse postal banking. Senator Elizabeth Warren has done the same, and Senator Kirsten Gillibrand introduced a postal banking bill in 2018.
As the Intercept notes, Sanders has long called for a 15 percent interest-rate cap on all consumer loans. By introducing the Loan Shark Prevention Act now, in cooperation with a freshman lawmaker who attracts massive media attention, Sanders may be hoping to reinforce the distinction between himself and his biggest competition for the title of primary front-runner: Joe Biden.
The former VP, in contrast to Sanders and several other Democratic candidates for president, has a less-than-progressive history with credit-card companies. Back in 2005, he sparred with Elizabeth Warren — who was then a Harvard Law School professor, not his primary competition — over a bill that made it more difficult for families to declare bankruptcy. Credit-card companies supported the bill; so did Biden, who became one of its most committed supporters in the Democratic Party. MBNA Corp., a credit-card company based in Biden’s home state of Delaware, was one of his biggest sources of campaign contributions over the course of his career. (MBNA has changed hands twice in recent years; it was acquired by Bank of America and then by Lloyds’ Banking Group.) Biden’s son, Hunter, also worked for MBNA.
The Loan Shark Prevention Act doesn’t just expose some barriers that separate lower-income American families from a more secure life. Depending on how other Democrats respond to its proposals, the bill may also reveal how wide the gulf is between the party’s left flank and its more centrist members.
