Experts Split on Trump’s 10% Credit Card Rate Cap Proposal

President Trump wants a 10% cap on credit card interest rates that would last for a year. But opponents warn the cap would cause a big restriction in credit.

With credit card interest rates averaging 19.65% as of Jan. 7, according to Bankrate, a drop to 10% would be a significant move especially for credit cards with higher interest rates such as cards held by subprime customers. People with poor credit scores pay credit card interest rates as high as 36%, CBS News reports. 

For consumers with credit card debt, a 10% cap on credit card interest rates for a year may be seen as a welcome relief. The rate cap is supported by Democrats, including Sen. Bernie Sanders and Sen. Elizabeth Warren, according to CBS News.

But others are quick to criticize the proposed cap and warn the cap will greatly restrict credit.

House Speaker Mike Johnson criticized the 10% rate cap stating there would be “negative secondary effects” to bringing down interest rate costs. He said President Trump and others had “probably not thought through” the rate cap proposal. 

President Trump would like interest rates to be capped beginning Jan. 20.

One path to a 10% rate cap is through the U.S. Congress.

A 10% rate cap on credit card interest rates would need bipartisan congressional legislation. Both the U.S. House and the U.S.Senate would need to get enough votes supporting the 10% rate cap. 

Banks are seeking alternatives to President Trump’s 10% rate cap on credit card interest rates. 

“Everything is on the table,” Jeremy Barnum, chief financial officer of JPMorgan Chase, told The New York Times.

Industry executives are considering options to the 10% industrywide rate cap such as offering credit cards with interest rates capped at 10% and giving cardholders a temporary reprieve on their credit card interest rates.

If the rate cap goes through, “People will lose access to credit like on a very, very extensive and broad basis, especially people who need it most, honestly,” Barnum warned.

Bank of America Chief Executive Officer Brian Moynihan also wants people to understand how a 10% rate cap would restrict credit. 

“The explanation we’ve always made sure people understood is that if you bring the caps down you’re going to restrict credit,” Moynihan said in a call to analysts. 

Fewer people would be able to qualify for credit cards, and credit lines would be restricted. Citigroup Chief Financial Officer Mark Mason said he does not support the 10% interest rate cap because a “cap would likely result in a significant slow down in the economy.”

Subprime borrowers will likely be pushed out of the credit card market altogether if a 10% cap on interest rates passes.

Having a blunt interest rate ceiling would push higher-risk borrowers out of the credit card market and toward predatory options, such as payday loans, subprime mortgages, or high installment loans, the Progressive Policy Institute advises. 

Brad Stroh, Co-Founder and Co-CEO of digital personal finance company Achieve, believes the 10% rate cap will be good for consumers with credit card debt.

“The administration’s proposal would give consumers a much-needed reprieve from the high interest rates that make paying down debt challenging. A 10% interest rate cap would slow compounding interest, preventing balances from growing faster than consumers can repay them,” Stroh said.  

“The measure would help reduce consumers’ overall debt burden and improve their financial health.”

Tiffany Funk, Co-Founder and President of point.me, gave her take on how the 10% cap on credit card rates would impact the economics of issuing credit cards. 

“While it’s hard to know exactly how card issuers have budgeted around projected interest fees, it’s safe to say it’s an important piece of card economics. Arbitrarily cutting that rate in half (or more!) would likely upend value calculations, and could have a significant impact on rewards and benefits,” Funk said. 

“If there is a 10% cap, it essentially makes lending to credit score borrowers under 650 or so to be completely unprofitable due to the credit expenses,” said JD Pisula, President and Chief Executive Officer of Accolade Advisory.

“So banks/credit unions would have to choose to put capital at risk if they want to lend at that rate but more likely they would just tighten the credit box or push them into other products like a short-term unsecured loan or secured loan.”

Shmuel Shayowitz, President and Chief Lending Officer at Approved Funding foresees many detrimental changes if the 10% rate cap is adopted.

“If it would get passed, I think credit standards would tighten and many subprime and near prime borrowers would quickly be cut off from credit. I believe annual fees, late fees and balance transfer charges would rise considerably,” Shayowitz said.

“Credit limits would be lowered and there would be much more aggressive collection tactics and more rigid repayment requirements.” 

The closing of credit card accounts is likely if the 10% rap cap is implemented, according to Tony DeSanctis, senior director at Cornerstone Advisors.

“It would be a material shift in the credit card market and lead to many cards being closed for risk profile and availability of credit would drop significantly,” DeSanctis said. “The ability to lend to sub-prime and even near prime customers would be greatly reduced.”

President Trump is pushing for a 10% rate cap on credit card interest rates beginning on Jan. 20. Banks and industry experts oppose the cap because it would restrict credit with subprime card customers facing account closures and losing access to credit.

A reduction in credit lines and increase in annual fees, late fees are other impacts of a 10% rate cap.