U.S. President Donald Trump has suggested limiting credit card interest rates to 10 percent, aiming to provide immediate relief to consumers. However, experts warn that while this move may offer short-term benefits, it could trigger a broader credit crisis in the long term.
In a recent post on Truth Social, Trump demanded that credit card companies enforce this cap by January 20, emphasizing his administration’s commitment to preventing Americans from facing exorbitant rates of up to 20 or 30 percent. Yet, the companies have not complied, prompting Trump to call on Congress to pass legislation transforming the proposal into law.
Despite gaining some bipartisan backing, the proposal has also drawn criticism from notable Republican figures. RSM’s chief economist, Joseph Brusuelas, expressed concerns that an artificial interest rate cap could lead to a reduction in credit availability, particularly for higher-risk borrowers with lower credit scores.
Typically, financial institutions determine rates by combining the central bank’s benchmark rate with a borrower’s individual risk assessment. Brusuelas cautioned that such caps, while initially popular, tend to negatively impact lower-income households that rely on credit for day-to-day expenses, potentially limiting their access to credit and curbing spending, which could ultimately slow down the economy and increase unemployment rates.
Currently, the average U.S. credit card interest rate stands at 23.79 percent, with rates for subprime borrowers exceeding 30 percent, as reported by LendingTree.
The proposal aligns with Trump’s campaign promises to address affordability issues, but it has faced resistance from the banking sector, which heavily relies on interest income. According to a study from Vanderbilt University, the industry could suffer significant financial losses if a 10 percent cap is implemented.
During the World Economic Forum in Davos, JPMorganChase CEO Jamie Dimon warned that such a cap could lead to an “economic disaster,” limiting credit access for the majority of Americans and adversely affecting households and small businesses.
Moreover, a 10 percent interest rate cap could impact U.S. credit card rewards programs. Patrick Sojka, founder of Rewards Canada, highlighted that these programs are often funded by interest income, and reduced earnings may prompt companies to scale back rewards offerings, affecting consumers who value these perks.
The proposal to cap interest rates at 10 percent has garnered support from progressive Democratic senators Elizabeth Warren and Bernie Sanders, who have long advocated for such measures to address high credit card rates and protect consumers from predatory lending practices.
While some lawmakers have pushed for the bill’s passage, others, including U.S. House Speaker Mike Johnson, caution against potential negative consequences and urge careful consideration before implementing the cap.