A renewed push to impose a cap on credit card interest rates has emerged following remarks from President Donald Trump, igniting a robust debate among lawmakers and the banking industry. On Friday, Trump proposed a 10% cap on credit card rates, a move that drew bipartisan support from various politicians who have long advocated for similar reforms.
Consumer advocates have championed the cause of limiting credit card rates for years, yet previous attempts have largely failed. In a stark warning about the potential impact of such a cap, banks have asserted that limiting interest rates would significantly restrict consumer access to credit, especially for those who rely on it the most. Jeremy Barnum, CFO of JPMorgan Chase, articulated the banks’ stance during an earnings call, arguing that implementing a cap would result in widespread loss of credit access.
Federal Reserve data reflects that average interest rates on credit cards have surged since 2022, hitting a staggering high in the summer of 2024. As of early January, average credit card interest rates reached 19.65%. With total consumer credit card debt soaring to $1.23 trillion, many Americans are feeling the financial strain.
Trump’s proposal, shared via a post on Truth Social, claims the move would protect the public from exorbitant interest rates typically ranging from 20% to 30%. While he indicated that his plan would take effect on January 20, specifics about its implementation remain unclear. To effectuate such a cap, Trump would likely need the cooperation of the Consumer Financial Protection Bureau, which oversees federal consumer financial rules.
Legislators have already made strides towards this goal. In February, Senators Bernie Sanders and Josh Hawley introduced a bill to limit interest rates to 10% until 2031. In a bipartisan effort, Representatives Alexandria Ocasio-Cortez and Anna Paulina Luna put forward a similar measure in the House. Hawley renewed calls for the passage of this legislation, asserting that working Americans are overwhelmed by mounting credit card debt while major credit card companies profit from escalating interest rates.
Further complicating the landscape, Senator Elizabeth Warren contacted Trump directly, emphasizing that Congress could pass the rate cap if he pushed for it. As consumers navigate a multifaceted debt crisis involving mortgages and student loans, financial analysts suggest that while the proposed cap might help future borrowers, its retroactive application on existing debts could pose significant legal challenges.
However, the cap’s potential to save consumers could be substantial, with estimates indicating savings of up to $100 billion annually. Despite the promise of lower costs for consumers, industry experts warn that this measure could lead to diminished access to credit, particularly affecting those with lower income and credit scores.
Bank executives have continued to voice concerns over the unintended consequences of a rate cap. Bank of America CEO Brian Moynihan expressed that such a measure could lead to stricter credit availability. In contrast, some newer financial services, such as the rewards program Bilt, have begun to align with Trump’s proposal by launching credit cards at the proposed 10% interest rate.
The American Bankers Association has raised concerns regarding the potential shift towards less regulated financing options that could arise as a consequence of the cap. One such alternative is the “buy now, pay later” (BNPL) model, which offers interest-free loans that consumers repay in installments. However, late fees are prevalent in these arrangements, raising questions about their overall cost and regulatory oversight.
Banks with a diversified portfolio may be more resilient against the effects of a credit card rate cap compared to entities heavily reliant on credit card revenues. This divergence was reflected in the stock market following Trump’s announcement, with shares of Capital One falling on the first trading day thereafter.
The ongoing dialogue surrounding credit card interest rates presents significant implications for consumers, financial institutions, and policymakers as they navigate the complexities of taxation, regulation, and economic stability in a turbulent financial landscape.
