EXPLAINERNews|Donald TrumpTrump wants to cap credit card interest rates at 10%. Would that work?Capping borrowing costs in the US has bipartisan support, but experts warn of unintended consequences.
The President of the United States, Donald Trump, has announced plans to implement a temporary cap on credit card interest rates at 10 percent for one year. This initiative is set to commence on January 20, the date of his inauguration.
The President of the United States, Donald Trump, has announced plans to implement a temporary cap on credit card interest rates at 10 percent for one year. This initiative is set to commence on January 20, the date of his inauguration.
For the cap on interest rates to become legally binding, congressional approval is required. The proposal has garnered bipartisan interest, with existing bills such as the "Credit Card Competition Act of 2023," introduced by Democratic Senator Dick Durbin and supported by Republican Senator Roger Marshall, addressing related issues like swipe fees imposed by credit card companies.
Another proposal, the "10 Percent Credit Card Interest Rate Cap Act," introduced by Independent Senator Bernie Sanders and Republican Senator Josh Hawley, has stalled in Congress due to industry opposition.
Analyses suggest that implementing a 10 percent interest rate cap could potentially save American consumers $100 billion annually. However, concerns have been raised about possible negative effects, including restricted credit access for consumers with lower credit scores. A moderate cap of 15 to 18 percent may achieve consumer savings without reducing lending volume.
This initiative is set to commence on January 20, the date of his inauguration.
Critics, including the Electronic Payments Coalition (EPC), warn that a cap could result in the closure or severe restriction of over 80 percent of credit card accounts, affecting millions of customers. The Bank Policy Institute (BPI) has also highlighted that a 10 percent cap could curtail or eliminate credit lines for customers who carry a balance month-to-month.
Certain borrowers in the United States already benefit from interest rate restrictions. Under the Servicemembers Civil Relief Act, military personnel enjoy a 6 percent cap on pre-active duty loans, while the Military Lending Act limits consumer debt interest rates to 36 percent for active-duty members. Additionally, federal credit unions have a capped interest rate of 18 percent.
At the state level, Arkansas has imposed a 17 percent cap on credit card interest rates since 2011, although this has led to mixed outcomes, including limited credit access for residents with lower credit scores.
Based on reporting by Al Jazeera.