Senate Bill Seeks to Restore State Usury Laws, Allowing Caps on Credit Card Interest Rates

Most consumers assume their credit card interest rates are governed by the laws of the state where they live. In reality, a nearly 50-year-old Supreme Court ruling allowed banks to export the interest rates of their home states—often those with weak or non-existent usury limits. Now, a coalition of Senate Democrats is attempting to reverse that precedent and return regulatory power to individual state legislatures, a move that could fundamentally alter the economics of consumer debt.[1][6]

The Empowering States' Rights to Protect Consumers Act, reintroduced in early 2026 by Senators Sheldon Whitehouse, Elizabeth Warren, Jack Reed, and Jeff Merkley, would amend the Truth in Lending Act. The bill clarifies that consumer lenders must abide by the interest rate limits of the states in which their customers reside, regardless of the bank's location or legal structure.[1]

The legislation directly targets the 1978 Supreme Court decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation. That unanimous ruling established that a national bank is bound only by the lending laws of the state where it is based. Following the decision, major credit card issuers relocated their operations to states like South Dakota and Delaware, effectively nullifying the strict usury caps maintained by other states across the country.[1][6]

The push for state-level control arrives as American households face unprecedented borrowing costs. According to the Federal Reserve Bank of New York, credit card balances hit a record $1.23 trillion in late 2025, with average interest rates climbing to nearly 22 percent. Proponents argue that restoring state authority is the most viable path to providing relief, especially after previous federal rate cap proposals stalled in a divided Congress.[1]

The debate gained unexpected momentum in early 2026 at the World Economic Forum in Davos, where JPMorgan Chase CEO Jamie Dimon suggested that states like Massachusetts and Vermont should test a 10 percent credit card interest rate cap to observe the economic effects. President Donald Trump also recently called for a one-year federal cap of 10 percent on credit card interest rates, adding bipartisan populist pressure to the issue.[1][2]

Senator Warren quickly seized on Dimon's comments, sending a public letter to the banking executive in February. Warren urged Dimon to formally support the Empowering States' Rights to Protect Consumers Act, noting that under current law, states are legally barred from implementing the exact 10 percent cap he proposed testing. She argued that the legislation would make his "great idea" a legal reality.[2]

The state-empowerment bill is part of a broader legislative push to rein in borrowing costs. In February 2026, Senator Jack Reed introduced a separate measure, the Predatory Lending Elimination Act, which would impose a hard nationwide 36 percent annual percentage rate cap on all consumer loans. That bill would extend protections currently reserved for active-duty military members to the general public, covering credit cards, installment loans, and payday lending.[7]

The financial services industry has mounted fierce opposition to the state-empowerment bill, warning that dismantling the national lending framework would severely harm consumers. Trade groups argue that a patchwork of state-by-state interest rate caps would drastically increase compliance complexity and force lenders to pull back from riskier markets, ultimately reducing access to credit.[3][4]

America's Credit Unions, a major industry group, issued a statement opposing the legislation, arguing it would create a fragmented lending system. The group warned that the approach would "reduce the availability of responsible, lower-cost credit offered by not-for-profit credit unions," suggesting that Congress should instead focus on policies that expand access to safe credit.[3]

The American Financial Services Association similarly warned that the bill would push consumers toward less transparent and more expensive alternatives. The association cited a Federal Reserve Bank of New York study that focused on states like Illinois and South Dakota, which implemented 36 percent all-in rate caps on non-bank consumer loans. The research found that lending to subprime borrowers decreased sharply under usury limits, as those borrowers were unable to find lower-cost loans from traditional banks.[4]

Despite the industry pushback, consumer advocacy groups are rallying behind the measure. The National Consumer Law Center and the Center for Responsible Lending have endorsed the legislative efforts, arguing that states need the tools to close loopholes and protect their residents. Advocates maintain that without state-level intervention, predatory lending practices will continue to trap working families in compounding cycles of debt.[5][7]