Proposed FEDERAL USURY CREDIT CARD ACT

WHEREAS, Banks and their affiliated companies issuing credit cards have a right to be fairly compensated for their risk,

WHEREAS, Credit card holders have the responsibility to compensate credit card issuers for there risk,

WHEREAS, If the interest rate on a credit card is 20%, then the total amount of interest charged over a 5 year period will equal an individual card’s credit limit,

WHEREAS, If the interest rate on a credit card is 30%, then the total amount of interest charged over a 3.5 year period will equal an individual card’s credit limit,

WHEREAS, The long term health of the national economy is substantially based upon maintaining a high level of consumer spending,

WHEREAS, The Federal Government, in conjunction with the Federal Reserve, has embarked on fiscal and monetary policies to protect the financial stability of banks operating in the United States,

WHERAS, The Federal Government, in conjunction with the Federal Reserve, has embarked in a program to lend funds to banks for their direct use and the indirect use of their affiliated credit card companies at significantly low interest rates,

WHEREAS, the Federal Government desires to continue to stimulate the national economy,

WHEREEAS, The Supreme Court has ruled in Marquette vs. First Omaha Service Corp that Credit card companies may charge interest rates that are usurious in one state if the card is issued in a different state, absent any preempting Federal Legislation,

WHEREAS, The Federal Government has not participated in the protection of the rights of credit card holders by limiting interest rates to a level that appropriately compensates credit card issues for their risk,

WHEREAS, The Federal Government desires to protect the rights of all consumers and credit card holders,

WHEREAS, The Federal Government considers that the ability of a credit card holder to pay off there outstanding balance is a mandatory basis for recalculating the risk of the credit card issuer.

The following rules shall immediately be adopted by the Federal Government into the Federal Statutes and will be applicable to all credit cards both (1) currently issued, with or without outstanding balances, and (2) to be issued in the future:

1. On any date the total interest charged over a 5 year period may not exceed the then current credit limit on an individual credit card.
2. Credit Card companies may not charge interest rates at a rate that is more than 10 times the interest rate which they or their bank affiliate or parent is charged upon any funds borrowed from either the Federal Government or the Federal Reserve.
3. A credit card company, in conjunction with the credit card holder, may agree to suspend use of a credit card and keep a low interest rate of 15%, in lieu of raising the interest rate and maintaining the current credit limit.
4. If on any date a credit card holder offers the issuer of a credit card a settlement that equals the recalculated balance, based upon an interest rate of 10% over the immediately preceding 5 years, then the credit card issuer must accept the settlement as payment in full, reduce the associated interest rate to 10.0% for the next 6 months, and reduce the going forward credit limit by not more than 50%. This settlement will be considered as a retroactive reduction of interest rate and will not be considered as a debt reduction or cancellation of debt for any purpose including both Federal and State income tax purposes and Credit Ratings.

Circular Creation of Risk by the Credit Card Companies

When a person elects to not pay off the entire balance of their credit card and elects to make monthly payments they are creating risk in excess of that which was contemplated at the issuance of the credit card. As a result, the Credit Card company has the right to begin raising the credit card interest rate. However, as the interest rate rises the debtor begins experiencing a much higher probability of defaulting upon their debt due to the compounding of the interest cost. This results in the sequential additional increase in the credit card issuer's risk, an additional increase in the interest rate charged, and the subsequent increase in the probability of default by the debtor.

Therefore, the Federal Government should legislate a maximum interest rate charged on unpaid interest at the statutory rate in the state of the taxpayer's residency, which in California is 10%. Current credit card statements show two categories of charges, (1) actual purchases, and (2) cash advances. The Federal government should legislate that there must be three categories of charges, (1) actual purchases, (2) cash advances, and (3) Unpaid interest. All payments should be first to Cash advances, second to purchases and third to interest charged.

Underlying Principles

1. This provision essentially limits credit card interest rates to a maximum rate of 20%.
2. This provision may periodically limit credit card interest rates to a maximum rate of 10%.
3. This provision is the basis to limiting certain credit cards to 15% while limiting the associated risk of the credit card issuer.
4. This provision will limit credit card interest rates to a maximum of 10% for individuals who pay off their recalculated balance in full.

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