By Daily Mail (U.S.) | Created at 2025-03-09 21:16:29 | Updated at 2025-03-10 03:18:50
6 hours ago
Staunch Donald Trump ally Rep. Anna Paulina Luna, R-Fla., has been slammed for teaming up with Alexandria Ocasio-Cortez on a bill that would cap credit card interest rates at 10 percent.
The condemnation came from Chamath Palihapitiya, a Canadian-American venture capitalist who is also known for his four year stint as a senior executive at Facebook from 2007 to 2011.
Palihapitiya, a billionaire, simply said Luna and AOC's proposal 'would be phenomenally disruptive.'
Senators Bernie Sanders, I-Vt. and Josh Hawley, R-Mo., introduced a nearly identical bill in the upper chamber last month.
Only allowing banks to charge 10 percent interest was an idea that was floated by Trump on the campaign trail, which gives these bills a chance to pass.
'We’re going to put a temporary cap on credit card interest rates. We’re going to cap it around ten percent. We can’t let them make 25 and 30 percent,' Trump said at a rally last September.
Most credit cards charge their customers an annual percentage rate (APR) of 20 percent at the lowest all the way up to 30 percent at the high end. The average APR is 24.2 percent, according to LendingTree.
Those who are against capping interest rates often argue that it would limit the ability of financial institutions to assess the risk of lending to individual customers.
Rep. Anna Paulina Luna, R-Fla., and Rep. Alexandria Ocasio-Cortez, D-N.Y., became an unlikely duo this week after they jointly introduced a bill capping credit card interest at 10 percent
Chamath Palihapitiya, a Canadian-American venture capitalist, said the proposal 'would be phenomenally disruptive'
Credit card issuers primarily make money from lending products by charging interest on customers' unpaid balances, and they often give higher APRs to those with lower credit scores.
People with low credit scores are usually riskier borrowers, so banks increase the interest those customers have to pay to have a better chance at recouping the money they extended to them.
'Providing an all-in APR is a flawed tool for measuring the true cost of the loan, because to maintain the safety and soundness of the lender and ensure that credit availability is offered to a broad range of consumers, banks have to price their loan products commensurate with a risk for each borrower,' Lindsey Johnson, president and CEO of the Consumer Bankers Association, told CNBC last month.
There's also the fear that if there was a APR floor, banks would just simply not extend credit to to people with low creditworthiness.
Luna and AOC argue that credit card interest rates are simply too high and have now become predatory.
'I’m proud to be the bipartisan co-lead to this legislation. For too long, credit card companies have abused working class Americans with absurd interest rates, trapping them in an almost insurmountable amount of debt,' Luna said in a statement announcing the bill.
'We need a fair solution - and that means getting rid of the status quo and putting a reasonable cap on interest rates.'
The federal funds rate - which economists and the news media obsess over every time the Federal Reserve meets because of its influence on mortgages - is the rate at which banks pay one another to borrow or loan money on an overnight basis.
Senator Bernie Sanders introduced a similar bill to AOC and Luna's that would also cap credit card interest at 10 percent. His previous attempt to limit it to 15 percent never went anywhere
Luna and AOC pointed out that that rate is at a 4.25 to 4.5 percent range, more than five times lower than what the average credit card holder pays.
Credit card APRs are most closely related to the prime rate, which is extended to the most creditworthy customers when they take out loans.
That rate is currently 7.5 percent. To make profit on their other customers, issuers tack on what's called a 'default margin' on top of that prime rate entirely at their discretion.
The bill from the two congresswomen would make this key part of their business strategy essentially obsolete.
The bill, if passed, would also allow Americans who paid more than 10 percent interest to bring legal action against credit card companies and get their money back within a two year statute of limitations.
AOC introduced a similar piece of legislation alongside Sanders in 2019 that would have lowered APRs to 15 percent.
That bill, called the Loan Shark Prevention Act, never made it out of committee and only ever gained one additional cosponsor.
