Credit card issuers generally adhere to a 36% interest rate cap on balances, but federal lawmakers have had little success in setting the rate as a national law. Now, states are grappling with the issue.
The Military Lending Act includes a 36% cap on loans that can be extended to active-duty service members, but it doesn’t apply to all consumers. Nonetheless, major banks have long generally drawn a line at 36% for credit card lending, meaning that consumers who don’t pay their balances may incur that added expense.
Now, digital payments players seeking to compete with established credit card issuers and networks are pushing for a 36% rate cap in states. With a number of states, including Iowa and West Virginia, considering such bills, the debate over interest rate limitations is spooling up.
The American Fintech Council, representing buy now, pay later companies like Affirm and earned wage access firms such as DailyPay, is parachuting into discussions over such legislation in states across the country.
“Clarity is key for responsible, online lenders and the consumers who are utilizing the product,” the council’s CEO, Phil Goldfeder, said in a Friday interview. “State-to-state [variations in] interest rate caps [and] lending rules make it very hard for any company to reasonably offer their products.”
There have been congressional attempts to set the 36% rate cap for lending to all consumers, but so far all their proposals have failed. Last month, Sen. Jack Reed, D-RI, reintroduced a bill seeking to pass the Predatory Lending Elimination Act to apply the same 36% interest rate cap to consumer lending as is applied for lending to service members. He and other Democrats pushed for passage of the congressional legislation in 2023 as well, but it has made little headway.
Now, the campaign to set a 36% interest rate cap has moved to state legislatures, as the states increasingly take on consumer financial policy discussions. That’s partly because President Donald Trump’s administration has shown less interest in such changes or oversight, as exemplified by plans to shutter the Consumer Financial Protection Bureau.
Interest rate limitations in states are all over the map, though 45 states, plus the District of Columbia, have some sort of cap in place, according to the National Consumer Law Center. The caps vary widely: Some exceed 100%, some allow additional fees, and a few don’t cap rates, according to a December report from the consumer advocacy group exploring the variance.
The center has supported Democrats’ efforts to pass Reed’s legislation.
Iowa’s legislature is one of the latest state chambers to consider such proposals. It’s considering proposed bills, including one that could set an interest rate cap limitation a 10%.
The AFC is plugging a 36% standard in all states, Goldfeder said in a Friday interview, including in Iowa. In West Virginia, the council last month threw its support behind a bill before the legislature that would raise the interest rate cap to 36%, from 31%.
“Responsible interest rate cap creates a clear standard that protects borrowers while ensuring responsible lenders can continue serving communities across Iowa,” Goldfeder said in a Thursday council press release.
The trade group is also making its perspective known on legislation in Colorado and Ohio, Goldfeder said. “For us, it's about creating a national standard,” Goldfeder said.
