Introduction to the Credit Card Interest Rate Cap Proposal
President Donald Trump has recently proposed a one-year, 10% cap on credit card interest rates. This move is expected to save Americans tens of billions of dollars, but it has drawn immediate opposition from the credit card industry. Trump announced this proposal on his social media platform, stating that he wants to prevent credit card companies from ripping off the American public with high interest rates.
The Current State of Credit Card Debt in the US
According to the Consumer Financial Protection Bureau, about 195 million people in the United States had credit cards in 2024 and were assessed $160 billion in interest charges. Americans are now carrying more credit card debt than ever, with a total of around $1.23 trillion. The average credit card interest rate is between 19.65% and 21.5%, which is significantly higher than the average rate of around 12% a decade ago.
The Proposed Interest Rate Cap and Its Potential Impact
Researchers have found that if credit card interest rates were capped at 10%, Americans would save roughly $100 billion in interest per year. However, the credit card industry argues that such a cap would hurt poor people by curtailing or eliminating credit lines and driving them to high-cost alternatives like payday loans or pawnshops. The industry also claims that a lower interest rate would require banks to lend less to high-risk borrowers.
Historical Examples of Interest Rate Caps
There are some historic examples that interest rate caps can cut off the less creditworthy to financial products. For instance, Arkansas has a strictly enforced interest rate cap of 17%, and evidence suggests that the poor and less creditworthy are being cut out of consumer credit markets in the state. Researchers have also found that an interest rate cap of 10% would likely result in banks lending less to those with credit scores below 600.
Legislative Efforts to Cap Credit Card Interest Rates
Legislation has been proposed in both the House and the Senate to cap credit card interest rates at 10%. Sens. Bernie Sanders and Josh Hawley released a plan in February that would immediately cap interest rates at 10% for five years. Reps. Alexandria Ocasio-Cortez and Anna Paulina Luna have also proposed similar legislation. The White House has not responded to questions about how the president seeks to cap the rate or whether he has spoken with credit card companies about the idea.
Opposition from the Credit Card Industry
The credit card industry is strongly opposed to the proposed interest rate cap. The American Bankers Association and allied groups have stated that the cap would drive consumers toward less regulated, more costly alternatives. The industry argues that lowering interest rates on credit card products would require banks to lend less to high-risk borrowers. Bank lobbyists have long argued that lowering interest rates would hurt poor people and drive them to high-cost alternatives.
Conclusion
The proposed credit card interest rate cap of 10% has sparked a heated debate between the credit card industry and lawmakers. While the cap is expected to save Americans tens of billions of dollars, the industry argues that it would hurt poor people and drive them to high-cost alternatives. The outcome of this proposal remains to be seen, but one thing is clear: the credit card industry will not go down without a fight. As the debate continues, it is essential to consider the potential impact of the proposed cap on American consumers and the credit card industry as a whole.
