President Donald Trump has proposed a cap on credit card interest rates at 10% for one year, citing concerns about how credit card companies have treated consumers. Speaking to reporters aboard Air Force One, he emphasized that he aims to protect the public from what he perceives as exploitation by these financial institutions. Trump has indicated that he would like the cap to take effect on January 20, coinciding with the anniversary of his second-term inauguration.
As of November 2023, average credit card interest rates soared to approximately 22.3%, a dramatic increase from the 13.9% average just a decade ago. This surge can be attributed to a rise in delinquencies and elevated federal interest rates, which have been maintained despite recent cuts by the Federal Reserve.
While Trump’s ambition is clear, questions linger about the feasibility of enforcing such a cap without congressional approval. There is uncertainty as to whether he would pursue cooperation with Congress, issue an executive order, or consider another approach. Trump’s remarks follow a failed bipartisan initiative led by Senators Bernie Sanders and Josh Hawley that sought to establish a similar rate cap, which has not advanced in legislation.
In reaction to Trump’s proposal, Senator Elizabeth Warren criticized him for not fulfilling a previous campaign promise to impose such a cap, expressing skepticism about his intentions. Warren, who played a significant role in the creation of the Consumer Financial Protection Bureau (CFPB), highlighted concerns regarding Trump’s attempts to undermine the agency tasked with safeguarding consumers against predatory financial practices.
Reactions from the banking industry were immediate, with bank stocks declining following Trump’s announcement. The Bank Policy Institute, representing various banking associations, cautioned that a cap on interest rates could be detrimental to consumers and small businesses. They argue that limiting interest income could lead banks to restrict credit access and increase minimum payment requirements for cardholders.
Despite the apprehension from industry sources, Trump’s proposal reflects growing public concern over the rising costs of credit, with many consumers hoping for a solution that provides relief from exorbitant interest rates. As discussions around financial consumer protection continue, the potential for reform in credit card practices remains a hot topic in American economic discourse.