By Ryan Labriola, Senior Manager

Senators Josh Hawley (R-MO) and Bernie Sanders (I-VT) proposed the “10 Percent Credit Card Interest Rate Cap Act,” which, if enacted, would amend the Truth in Lending Act (TILA) to prohibit the annual percentage rate (APR) on credit cards from exceeding ten percent (10%). The proposed interest rate cap would remain in effect through January 1, 2031. The bill, as written, contains various provisions that financial institutions should understand, so as to enable future compliance if and when the legislation is adopted and becomes law.

Interest Rates vs. APR

While the title of the bill references an “interest rate cap,” the text of the bill requires that the APR not exceed 10 percent. This distinction  is an important one, as the interest rate is the percentage of interest applied to a balance whereas the APR is the “cost of credit, expressed as a yearly rate.”^[1] The APR includes all finance charges associated with the credit, including interest, annual fees, late payment fees, balance transfer fees, and more.^{[2] [3]} If passed in its current form, this approach would mark a major change for financial institutions offering credit cards. LendingTree calculated the average APR for a new credit card to be 24.26 percent as of January 2025,^[4] and, as of November 2024, the Federal Reserve determined the average APR assessed on existing accounts to be 21.47 percent.^[5]

Other Provisions

While the 10 percent cap is the headline, the remainder of the bill includes other important provisions that warrant understanding, including curtailing potential loopholes to the cap and creating penalties for noncompliance.

Following the cap, the bill states that “Any fees that are not considered finance charges under section 106(a) [of TILA] may not be used to evade the limitations of [the ten percent cap], and the total sum of such fees may not exceed the total amount of finance charges assessed.”^[6] There are two parts to this sentence that require focus and careful consideration by financial institutions.

1. The bill specifically prohibits using non-finance charges to “evade” the cap. In this provision, Congress is anticipating and preventing loopholes where financial institutions could begin charging fees that would not meet the definition of a finance charge, and therefore not be subject to the ten percent cap.
2. Following this prohibition, the bill creates a new requirement that “the total sum of such [non-finance charge] fees may not exceed the total amount of finance charges assessed.”^[7] This is a major development for the financial services industry as there would be a limitation on non-finance charges. Since finance charges on credit cards can vary based on the fees assessed on individual accounts, institutions will need to regularly understand the total finance charges assessed to set a limit on allowable non-finance charges.

The bill’s provision relative to noncompliance that is “knowingly done” requires the “forfeiture of the entire interest which the note, bill, or other evidence of the obligation carries with it, or which has been agreed to be paid thereon.”^[8] This is straightforward language—if a financial institution charges more than a ten percent APR, then they will have to remediate the customer. Additionally, the bill requires that creditors violating the 10 Percent Credit Card Interest Rate Cap Act be subject to TILA’s previously existing civil liability requirements.^{[9] [10]}

Private Rights of Action

Coupled with the bill’s noncompliance provisions, the bill extends TILA’s private right of action to the scenario in which a consumer is charged more than a 10 percent APR. Customers and their lawyers would have two years from the date on which collection was made to recover all interest, fees, or finance charges.^[11] With the Federal Reserve Bank of New York estimating that Americans held $1.17 trillion in credit card debt as of the third quarter of 2024,^[12] the potential for more and more consumers pursuing legal remedies under TILA certainly is enhanced if this bill were to become law.

Considerations for Financial Institutions

This bill, while short in length and straightforward,  includes provisions that when taken as a whole represent major changes for the industry, as the ramifications for credit card issuers could be considerable. While financial institutions do not need to take any action immediately, except to watch the progress of this bill as it works its way through Congress, below are several considerations to keep in mind:

• Loan origination/servicing system providers that perform APR, finance charge, and non-finance charge calculations on behalf of institutions will be key partners if this bill passes. Having systematic control environments would be critical if calculation changes were needed.
• The regulatory change management function will be important for sustainability and effective compliance. While it remains to be seen if this bill will become law, regulatory change management will be a key aspect to manage through potential changes.
• Continuing regular reviews of credit card disclosures will help prepare for potential changes. While many institutions regularly review their disclosures, this bill creates wholesale changes that could require a deeper review of current and future disclosures. Understanding the current state of the institution’s credit card disclosures while staying abreast of the progress of this bill will only help should it pass.

If passed and signed into law, the 10 Percent Credit Card Interest Rate Cap has the potential to reshape the credit card industry. Financial institutions should stay abreast of this bill and, if it passes, consider what changes will be required.

[1] 12 CFR 1026.14(a).

[2] 12 CFR 1026.4

[3] https://www.nerdwallet.com/article/credit-cards/what-is-a-finance-charge

[4] https://www.lendingtree.com/credit-cards/study/average-credit-card-interest-rate-in-america/

[5] https://www.federalreserve.gov/releases/g19/current/g19.pdf

[6] 10 Percent Credit Card Interest Rate Cap, Sec. 2. Cap on Credit Card Interest Rates, lines 5-8.

[7] 10 Percent Credit Card Interest Rate Cap, Sec. 2. Cap on Credit Card Interest Rates, lines 7-8.

[8] 10 Percent Credit Card Interest Rate Cap, Sec. 2. Cap on Credit Card Interest Rates, lines 11-15.

[9] 10 Percent Credit Card Interest Rate Cap, Sec. 2. Cap on Credit Card Interest Rates, lines 24-25.

[10] 15 USC 1640.

[11] 10 Percent Credit Card Interest Rate Cap, Sec. 2. Cap on Credit Card Interest Rates, lines 16-23.

[12] https://www.foxbusiness.com/economy/credit-card-debt-surges-another-record-high-new-york-fed-data-shows