Restoring American Financial Stability Act of 2010--Continued

Floor Speech

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Mr. WHITEHOUSE. Madam President, I had planned to offer an amendment this afternoon. I have been informed by the managers that the amendment slots are full at the moment. I wish to speak about my amendment and then return to the floor at the earliest opportunity to offer it for a vote.

First, I say to the chairman of the Banking Committee that the bill we are currently debating would do great things to regulate an out-of-control Wall Street, to end the pernicious practice of too big to fail, and to provide for regular consumers an independent financial protection agency to look out for their interests against all the big sharks and lobbyists and lawyers who are ganged up against them on consumer debt. I appreciate the work Chairman Dodd and Chairman Lincoln have done, and I look forward to continuing to work with them on this important piece of legislation.

My amendment is cosponsored by Senators Merkley, Durbin, Sanders, Levin, Burris, Franken, Brown of Ohio, and Menendez, and we are continuing to solicit cosponsorships. We are also receiving endorsements from outside of this body.

The amendment would address an area that is not yet covered by the Wall Street reform bill; that is, runaway credit card interest rates. It would do so not by imposing new restrictions on lending but, rather, by restoring historic State powers--powers that were eliminated in the relatively recent past.

Madam President, when you and I were growing up, a credit card offer with a 20-percent or 30-percent interest rate might have been a matter to bring to the attention of the authorities. Such interest rates were illegal under the laws of most, if not all, of the 50 States. Laws against charging excessive interest rates go much further back than our youth, however. The Code of Hammurabi in the third millennium B.C. limited interest rates. Hindu laws of the second century B.C. limited interest rates. Roman law limited interest rates. So when America was established, there was already a long tradition of protecting citizens against excessive interest rates, and that tradition carried to the founding of the United States of America.

For the first 202 years of our Republic, each State had the sovereign power to enforce usury laws against any lender doing business with its citizens. During those two centuries, our economy grew and flourished, and lenders profited while complying with those laws.

Then, in 1978 came an apparently uneventful Supreme Court case. It was little noticed at the time it was decided. The case was called Marquette National Bank of Minneapolis v. First of Omaha Service Corporation. The Supreme Court there had to determine what the word ``located'' meant in an old statute, the National Bank Act of 1863--whether it meant that the transaction between a bank in one State and a consumer in another State was governed by the law of the bank State or of the consumer State. The resolution was that the term ``located'' referred to the location of the bank and not the location of the consumer. This meant that in a transaction between a bank in one State and a consumer in another, the transaction would be governed by the State in which the bank was domiciled.

Well, it did not take long for the big banks to see the loophole this very narrow decision created. This loophole was never sanctioned by Congress, apparently never intended by the Supreme Court, but it was a significant loophole. It allowed banks to, for the first time in the Nation's history, avoid interest rate restrictions by the States of their consumers. It allowed them to get through that loophole by reorganizing as national banks and moving to States with comparatively weak consumer protection.

Once the banks figured out that loophole, what is called ``a race to the bottom'' ensued. Bank credit card centers moved to States with the worst consumer protections, and in some cases States made their consumer protections even worse in order to attract that business to their State. The result of that is that today the credit card divisions of major banks are based in just a few States. That deal with the bank State causes consumers in all other States to be denied their traditional, historic, lawful protection against outrageous interest rates and fees.

With millennia of interest rate protections behind us and hundreds of years of protection by the sovereign States of our Nation, the current system that has developed since that 1978 decision is the oddity in our history.

My amendment would do nothing more than reinstate the historic, longstanding powers of our sovereign States to protect their citizens against excessive usurious interest rates. Let me be clear about what this amendment would not do. It would not mandate anything. It would not even recommend interest rate caps. It would not impose any other lending limitations. It would just restore to our sovereign States the power they enjoyed for over 200 years from the founding of the Republic--the power to say: Enough. Thirty percent or 50 percent or 100 percent is too much interest to be charged to its citizens.

The current system is unfair to consumers, but it is also unfair to local banks--banks that continue to be bound by the laws of the State in which they are located. A small local bank has to play by the rules of fair interest rates. The gigantic national credit card companies can avoid having any rules at all. That is not fair. We need to level the playing field to eliminate this unfair and lucrative advantage for Wall Street banks against our local Main Street community banks.

To make sure lenders cannot find another statute to use to once again avoid State law, my amendment would apply to all types of consumer lending institutions and not just national banks. So no more changing your charter or your means of business to avoid limitations on gouging your customers.

My amendment gives State legislatures ample time to revise their usury statutes if they wish and gives lenders ample time to adjust. The amendment would not go into effect until 1 year after the President signs the bill into law.

In the meantime, it is worth noting that most States' usury laws are around or above 18 percent. Presently, federally regulated credit unions do quite well under a Federal 18 percent interest rate cap. So there should not be a large shock when this amendment goes into effect as law. It is the 30-percent-and-over interest rates that are the recent anomaly, the historic peculiarity, the oddity, and cruelty to consumers that States have traditionally been able to defend against.

We should go back to the historic norm, the way the Founding Fathers saw things under the doctrine of federalism, and close this modern bureaucratic loophole that allows big Wall Street banks to gouge local citizens and compete unfairly with local banks.

I ask my colleagues for their consideration of this amendment and urge them to support it. I think it is a good amendment.

I see the distinguished majority whip on the floor. I yield back my time so that he may speak.

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Mr. WHITEHOUSE. Mr. President, I thank the Senate majority whip for cosponsoring our legislation. I appreciate his support immensely. He has a wonderful way of making things clear and helping people understand how basic and simple and historic this amendment is. It takes us back to the way the country was through the vast majority of its history.

The ``greatest generation'' served in World War II, came home, and went to college and built the society we now live in under these rules. George Washington and his men at Valley Forge served under these rules. The Civil War took place and the Korean war took place under these rules. There are 202 years of solid history behind this issue.

I will close with an appeal to my colleagues to continue to show interest in this legislation, in particular my colleagues on the other side of the aisle. If you believe in States rights, this is a good piece of legislation.

If you believe in States as laboratories of democracy, as centers of innovation, as places where you multiply times 50 the chance of getting the right answer when you allow a little bit of innovation to take place, you should support this legislation.

If you take comfort in more than 200 years of solid American history proving that this is the right way to go, you should support this amendment.

If you want to protect consumers in your State from out-of-State banks that are out of control and have no restrictions on interest rates they can charge your consumers, you should support this amendment.

If you think the Federal Government has too much power and you want the States to have more say about what can take place with its own citizens, you should support this amendment.

I look forward to continuing to push for a vote on this amendment. I think it is an important one.

I yield the floor. I suggest the absence of a quorum.

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