Can Trump Actually Cap Credit Card Interest Rates?

President Donald Trump made headlines on Friday when he called for a cap on credit card interest rates at 10% for one year. In a post on Truth Social, he expressed concern that Americans are being “ripped off” by credit card issuers who charge high interest rates. While this proposal has drawn bipartisan support in the past, experts warn that implementing such a cap is not as simple as it may seem.

The Federal Reserve reports that the average APR for credit card holders who carry a balance from month to month is 22.3%. With the typical credit card borrower owing over $6,700, Trump’s proposal to lower interest rates could potentially save consumers a significant amount of money. However, forcing credit card issuers to lower their rates would require more than just a presidential decree.

Danielle Zanzalari, an assistant professor of economics at Seton Hall University, explains that existing regulations like the Truth in Lending Act give banks the authority to set their own interest rates. Implementing a cap on interest rates would likely require legislation to be passed by Congress.

Despite the legal challenges that a presidential executive order might face, Trump’s support for the proposal could help garner bipartisan support in Congress. Lawmakers from both parties have previously attempted to introduce legislation to cap credit card interest rates, but none have succeeded. The threat of a rate cap has already had an impact on the financial markets, with major banks and credit card issuers seeing a decline in their stock prices.

Credit card issuers rely on higher interest rates to offset the risk of lending to borrowers without collateral. Unlike secured loans, credit card debt is unsecured, making it a risky form of lending for banks. If a borrower defaults, credit card issuers have limited options for recouping their losses. Lowering interest rates could potentially result in reduced access to credit and rewards for consumers.

While a temporary cap on credit card interest rates may provide relief to borrowers struggling with debt, the long-term implications for the credit card industry remain uncertain. A recent study by the Consumer Financial Protection Bureau found that store credit cards, which are often easier to obtain for individuals with low credit scores, have an average APR of 31.3%.

Overall, Trump’s proposal to cap credit card interest rates at 10% for one year has sparked a debate about the affordability of credit for consumers and the profitability of credit card issuers. While the idea of saving billions of dollars in interest payments may seem appealing, the potential consequences of such a policy change are complex and far-reaching. President Trump’s proposal to cap credit card interest rates at 10% has sparked a debate on the potential impact it could have on borrowers. While it is acknowledged that banks may reduce their rewards programs, the effects could be far-reaching, according to credit expert John Ulzheimer.

Ulzheimer warns that banks may respond to the cap by lowering borrowers’ credit limits and even closing credit cards. This could result in less access to borrowing for most Americans, particularly those with subprime credit scores. Limiting access to credit can further damage a person’s credit score, creating a cycle of financial hardship.

The proposal, set to take effect for one year starting Jan. 20, could have long-lasting consequences for borrowers. Ulzheimer notes that even a temporary cap could lead to permanent changes in credit availability. If banks close credit cards due to the cap, borrowers may still face negative repercussions beyond the one-year limit.

The potential impact of the cap is particularly concerning for individuals with low credit scores. Lenders typically become more risk-averse in such situations, making it harder for those with poor credit to access affordable credit options. This could further widen the gap between individuals with high credit scores and those with subprime credit.

Overall, the proposal to cap credit card interest rates at 10% has raised concerns about the future of borrowing in America. While the intention may be to protect consumers from high interest rates, the reality could be a reduction in credit availability and increased financial strain for many borrowers. It is essential for policymakers to consider the broader implications of such a proposal before implementing significant changes to the credit card industry.