Writer: Lucy Lazarony
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
A White House official is calling for banks to voluntarily issue “Trump cards,” credit cards with interest rates capped at 10%. Doing so may remove the need for legislation that would place a 10% rate cap on all credit cards for a year, American Banker reports.
A 10% rate cap on all credit cards for a year has been pushed by President Trump, but banks and industry groups are opposing the measure.
President Trump gave banks until Jan. 20 to meet the 10% rate cap. But as Reuters points out he has not offered details on how a 10% rate cap would come to be and how it would be enforced.
A Voluntary Path to 10% Credit Cards
Kevin Hassett, the director of the National Economic Council, said legislation may not be needed to give consumers a 10% interest rate on credit cards.
“Our expectation is that it won’t necessarily require legislation because there will be really great new Trump cards presented for folks that are voluntarily provided by the banks,” Hassett told Fox News.
Hassett said Trump cards would be directed toward people who may not have access to credit right now but have enough income and stability to be worthy of credit, CNBC reports.
Already Bilt has launched a new set of credit cards with a 10% rate on new purchases that lasts a year. After the year is up, a variable annual percentage rate of 26.74% to 34.74% gets applied.
Rate Cap Would Limit Subprime Credit Access
Subprime borrowers would see their credit access cut off if a 10% rate cap passes, according to Brian Scott, co-founder of RAI Partners.
“Most Americans of modest needs would suffer greatly because most of their credit access would be cut from a credit card perspective, and they’d be forced to find other ways,” Scott said.
What are those other ways of attaining credit? Subprime borrowers would be forced to look to alternative lenders, payday lenders, and buy now, pay later for credit, Scott said.
“Not all of those are bad, but in many cases come with a higher interest rate than what a credit card might already have,” Scott said. “So that’s why credit cards are so popular because they actually have better rates for consumers of modest means than those other lending types.”
10% Rate Cap Not Likely to Pass
Scott does not see a 10% rate cap on all credit cards for a year passing Congress, but he does foresee a legal challenge ahead.
“Is it likely that something passes at 10%? No, it’s not likely at all. Is it likely that something passes? Probably,” Scott said.
“This process … the legislative process, takes a long time. And let’s just say by the time it goes through Congress, there’s likely to be some sort of legal challenges to this too. And those legal challenges can drag on for years as well.”
Overall Impact on Credit Card Market
If a 10% rate were to be passed, it would yield significant changes to the credit card market.
“If this could actually be enacted and enforced, it would have a monumental impact on credit-card availability and pricing,” said Fergus Hodgson, director of Econ Americas. “The depth of the credit-card market would plummet overnight since there would be so little incentive to provide credit cards.
“Likely, there would be a large shift back to plain debit cards,” said Hodgson.
How would issuers make up for the loss of interest income during a 10% rate cap?
“They will make many changes, such as reducing customer services and rewards. They will be incredibly clever in circumventing the interest-rate cap. That could even mean application fees for background checks and fees for early termination,” Hodgson said.
The Bottom Line
A White House official is proposing the idea of banks voluntarily issuing credit cards with 10% interest rates. Such a move would deflate the call for a 10% rate cap for all credit cards for a year that President Trump pushed for earlier this month.
