United Arab Emirates caps credit card interest at 18 percent

An Arab nation's move to curb its citizens' credit card debt could inspire American lawmakers to cap interest rates, according to a recent Time report. Despite Sharia rules that prohibit Islamic banks from charging interest, many credit card users in the United Arab Emirates pay service charges that amount to a 36-percent annual percentage rate, writes Time's Martha C. White.

The U.A.E.'s central bank announced plans this month to cap those service fees at the equivalent of an 18 percent APR. Likewise, bank officials promised actions that would halt early repayment fees that often forced borrowers to pay the same amount of interest, regardless of when they pay off their debt.

So far, the only pressure on credit card issuers this campaign season has come from comedienne Roseanne Barr. The star of an upcoming NBC sitcom announced her intention to seek the Green Party's presidential nomination, offering a campaign platform that would forgive most credit card and mortgage debts.

Little legislative interest in capping finance charges

Comedic posturing aside, previous attempts to set a nationwide cap on credit card interest rates have attracted only marginal support from lawmakers. In 2009, independent Vermont senator Bernard Sanders brought a 15 percent interest rate limit to the Senate floor, only to see it flop in a 33-60 vote.

The same year, lawmakers passed other new rules that restricted banks' ability to change consumers' interest rates without prior notification and an opportunity to opt-out by closing accounts. Under the same rules, banks may offer low introductory rates as long as they clearly communicate expiration dates to new cardholders.

Citibank changed the way banks set credit card APRs in the 1980s, when it moved its core consumer lending operations to offices in Sioux Falls, South Dakota. The geographic shift enabled Citi to avoid state caps on credit card interest rates, since South Dakota laws make no such restrictions. Federal banking laws require credit card issuers to adhere to limits set by officials in their "home" states, even though they can offer their products across state lines.

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