Big Bank Usury: Warren on Whitehouse Amendment

Courtesy of Lynn Parramore at New Deal 2.0

Aristotle called usury the “most hated form” of wealth-accumulation. Dante sent practitioners to the seventh circle of hell. The Qur’an proposes that usurers are controlled by the devil’s influence, and we’ve all heard how Jesus, that avatar non-violence, was stirred to a round of ass-kicking when he found the money lenders in Herod’s temple.

Screwing the poor through usury has been considered an abomination throughout human civilization – a disease of the body politic that sickens people morally and economically.

For two centuries, American states had the power to enforce usury laws against any lender doing business with its citizens. But in 1978, a Supreme Court case transformed the world of lending. In Marquette National Bank of Minneapolis v. First of Omaha Service Corp., the Supreme Court changed the interpretation of the National Bank Act of 1863 so that states could no longer regulate interest rates on nationally-chartered banks. BINGO! Big banks quickly saw a Big Opportunity. They would now be able to dodge interest rate restrictions by reinventing themselves as “national banks” and hightailing it to states with weak consumer protections. A small number of states chucked interest rate caps in order to lure credit card business and related tax revenue.

Thanks to that unfortunate 1978 decision, credit card divisions of major banks are based in just a few states, while local banks struggle with unfair out-of-state competition fight to stay afloat. Meanwhile, consumers across the country are gouged by stratospheric interest rates and fees.

An amendment submitted by Senator Whitehouse and cosponsored by Senators Cochran, Merkley, Durbin, Sanders, Levin, Burris, Franken, Brown (OH), Menendez, Leahy, Webb, Casey, Wyden, Reed, Udall (CO), and Begich aims to change all this by restoring state powers to protect their citizens with interest rate limits on lending done within the state.

Here’s a breakdown of what the amendment would accomplish:

Restore to the states the ability to enforce interest rate caps against out-of-state lenders.
By Amending the Truth in Lending Act, cover all consumer lenders, no matter what their legal form, minimizing the opportunity for gaming by changing charter type.
Become effective twelve months after enactment – giving state legislatures time to evaluate and update usury statutes.
Level the playing field so that intrastate lenders like community banks, local retailers, and credit unions are no longer bound by stricter lending limits than national credit card companies.

TARP watchdog and New Deal 2.0 contributor Elizabeth Warren argues that “the loopholes that let big banks escape local laws need to be closed. She explains that there is “no good reason why large institutions should be able to headquarter in states with lax protection and then do business all over the country without following local laws. Smaller banks have to comply with tougher local rules, and the big banks should have to do the same. We need a level playing field between small, community banks and big, national banks.”

Memo to Big Banks: Get ready, boys. There’s a New Sheriff in town.