Heading into a highly contested election season, members of Congress are gaining even more momentum regarding efforts to regulate the financial industry and demonstrate a legislative commitment to protecting the average American consumer. One of the latest proposed pieces of legislation includes amendments to rein in exorbitantly high credit card interest rates and fees.

There is one being put forward by Senator Bernard Sanders of Vermont that would cap the interest rate that your credit card company can charge on unpaid balances at 15 percent. Currently many credit cards – and perhaps the majority of major credit cards – are already charging more than that. A lot of credit cards, for example, now carry regular APR rates of 19 percent or more. Then if you have a low credit score or violate one of the terms of your credit card agreement by making a late payment or going over the imposed spending limit you can wind up paying a rate that is in the mid to high 20 percent range. His bill would cap your rate at 15 percent interest.

But most Washington observers believe that Senator Sander’s idea won’t get very far in Congress due to pressure from the credit card industry. The proposed bill is most likely a gesture or token move by the politician to help him win populist backing from his constituents by showing that he is willing to stand up against big banks. That particular stance resonates with many Americans these days because they are fed up with perceived mistreatment from banks and other lenders. It also helps to explain why Congress is ratcheting up the pressure on banks right now – despite the fact that Congress just recently passed a major credit card industry regulations overhaul bill that went into effect earlier in 2010.

But another proposal that does have a decent chance of passing into law is one that would close a legal credit card industry loophole that was created about 30 years ago. Back then the Supreme Court ruled that banks are to be governed not by laws from state to state but instead by the laws of the particular state where the bank has its main offices or its credit card division headquarters.

If you’ve ever wondered why so many credit card companies are based out of the tiny little state of Delaware or the rather remote and rural state of South Dakota, for example, the reason is that those two states have lots of laws that favor financial institutions and credit card companies. So ever since that Supreme Court ruling back in 1978, the credit card divisions of most big banks have established their offices and legal residency within South Dakota or Delaware to take advantage of the relatively lax consumer protection statutes in those places. That’s why they can get away with charging you interest rates that go as high as 28 or 30 percent, because in the states of South Dakota and Delaware there is no limit on interest rates.

Of course this can be a huge financial boon to those states with weaker rules, because the states get to collect tax revenues from the banks and credit card divisions that are based within their jurisdictions. Having big credit card operations headquartered in a state also creates jobs and other economic perks. In the wake of that landmark Supreme Court ruling, in fact, many other states besides Delaware and South Dakota have loosened up their own consumer protection laws regarding credit card lending.

But individual states could regain control of how banks operate within their borders, no matter where the banks happen to be headquartered, under the proposal being urged by a bipartisan group of senators. The two who crafted the proposal are Senator Sheldon Whitehouse, a Democrat from Delaware’s neighboring state of Rhode Island and Senator Thad Cochran, Republican from Mississippi.

At a press conference Senator Whitehouse said that “Right now, because of this loophole, the big corporations trump state governments.” That is a system that he and other Congressional legislators – plus lots of state governments – believe needs to be changed. Senator Brown of Ohio, who also supports the bill, has pointed out that in his home state there are laws preventing the interest rates on loans of less than $100,000 from exceeding eight percent. But his state has no control over what credit card companies based in other states are able to charge the people of Ohio. Senator Sanders of Vermont believes that charging very high rates of interest on credit cards, especially during this time of economic uncertainty and high unemployment, is unethical and should be stopped.

So in the coming months we may see Congress take even more aggressive steps toward reining in credit card interest rates, but for the time being we will have to wait and see how the rest of the senators and representatives decide to vote on this newest round of proposals.

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