Republican presidential candidate and former U.S. President Donald Trump arrives for a campaign event since a man carrying a rifle was shot on Sunday at the Dort Financial Center in Flint, Florida, on September 17, 2024. It was his first event since he was arrested while playing golf near the Dortmund Financial Center in Michigan.
Scott Olson | Getty Images
Former President Donald Trump made headlines this past week with another surprising economic policy announcement. Tips are exempt from federal income tax and are tax-deductible after promising to provide women with free IVF sessions overtime pay And Social Security benefits are not subject to income tax, and Trump now says he will cap credit card interest rates at around 10% if he is elected president in November.
On September 18, the Republican presidential candidate said at a rally in New York: “While working-class Americans catch up, we will put a temporary cap on credit card interest rates. We can’t let them earn 25% and 30%. “
Trump’s pledge comes in the final stretch of an extremely close presidential race between him and the surprise Democratic nominee, Vice President Kamala Harris. This is also a time when credit card debt is placing a heavy burden on many American families.
According to the data, the average credit card balance in the second quarter of 2024 was $6,329, compared with $4,828 in the same period in 2021 TransUnion. current delinquency rate More than 3% Federal Reserve data shows this is the highest level since 2011.
Trump’s proposed interest rate cap, if passed, would have a huge impact on consumers and the financial industry.
Ted Rossman, senior industry analyst at Bankrate, said that the current average interest rate on credit cards exceeds 20%, and some cards have annual interest rates as high as 36%.
“A 10% cap would completely disrupt the credit card market,” Rothman told CNBC.
While the Trump campaign has not yet provided details on how the proposed cap would be implemented, campaign spokesperson Carolyn Leavitt said it was intended to “provide temporary and immediate relief to hard-working Americans,” including those “working to keep their bills balanced.” and those who cannot afford the cost.” On top of skyrocketing mortgage, rent, groceries and gas costs, there are hefty interest payments. “
Harris did not specifically propose limits on credit card interest. However, she focused on Americans’ debt burden and vowed to eliminate medical debt for millions of families. The vice president has also repeatedly touted her work in the Biden administration to secure billions of dollars in funding. federal student loans forgive.
The Biden administration is also working to reduce so-called junk fees paid by consumers, including high fees for late payments on credit cards. In February, the Consumer Financial Protection Bureau analyzed credit card interest rates and concluded that by some measures, credit cards have never been more expensive, and card issuers are reaping huge profits as a result.
National rate cap requires Congress
Consumer advocates say there are few limits on credit card interest rates nationwide under current federal law.
this Military Loan Act of 2006 A 36% interest rate cap is placed on many loan products sold to active duty military members and their families. Likewise, Federal credit unions are often restricted Credit card interest rates are 18%.
Beyond these examples, however, the power to set bank interest limits is largely left to states, said Adam Rust, director of financial services at the nonprofit Consumer Federation of America.
Below 19th century national banking lawRust said banks only have to abide by specific interest rate limits in the state where the bank is headquartered.
“Not coincidentally, most credit cards are issued by south dakotaDelaware or Utah because those states have very loose regulations,” he said.
Access to credit will dry up.
Ted Rothman
Bankrate Senior Industry Analyst
Rust said that despite Trump’s recent campaign promises, he would not have the power to change that even if he were in the White House.
“The president cannot put a cap on credit card interest rates,” Laster said.
Neither can the Consumer Financial Protection Bureau, the U.S. government agency charged with protecting consumers from financial abuse.
Rust said that if Trump wanted to impose a rate cap nationwide, “it would require legislation from Congress.”
Specifically, Congress may need to pass an amendment The truth about lending lawsbefore the federal government can impose a national interest rate cap on credit cards.
But recent bills seeking to limit what banks charge for credit card interest, including capping interest rates at 36% and Another caps it at 18%.
“This is a compelling political topic,” Rothman said of Trump’s proposal. “But I seriously doubt that something like this would pass in the House and Senate.”
Meanwhile, consumer advocates are skeptical that a second Trump administration would actually offer borrowers better terms than current policy.
“The past Trump administration Weakening the Consumer Financial Protection Bureau, Remove protection for payday loans with 400% APR and took other measures that weakened consumer protections,” said Lauren SandersDeputy Director, National Consumer Law Center, a nonprofit organization.
A 10% interest rate cap could backfire
Financial experts on both sides of the debate have expressed concern that a 10% interest rate cap could backfire on consumers in a variety of ways.
Nicholas Anthony said one argument is that if banks see a significant drop in the interest rates they charge all credit card holders, they will respond by limiting the number of high-risk consumers they agree to issue credit cards to. Policy Analyst at the Institute’s Center for Monetary and Financial Alternatives.
“In response to this cap, lenders may deny loans if they deem servicing too risky or costly, or they may reduce the servicing they provide,” Anthony said.
Bankrate’s Rothman agrees.
“The unintended consequence will be that the credit pipeline dries up,” he said. “If 10 per cent is the maximum fee they can charge, it’s not profitable[for the banks].”
But Sanders warned not to let the banking industry’s pessimistic forecasts about the potential impact of a proposed 10% interest rate cap drown out what she saw as a strong case for setting a rate cap above 10% but below current highs.
“The banks are opposed to any interest rate cap,” she said. “They claim that if interest rates are capped at 36 per cent, the sky will fall.”
Oscar Yellow | Moment | Getty Images
Still, consumer advocates have other concerns about the unintended costs of Trump’s proposal.
“Rate caps will help consumers as long as they don’t result in cross-over increases in fines,” Rust said. “Otherwise, it’s a game of whack-a-mole.”
In 2022, credit card issuers will charge $14 billion in late feeshe pointed out. The Consumer Financial Protection Bureau found that this amount represents more than 10% of the total $130 billion in interest and fees charged by these companies to consumers.
A new CFPB rule that would cap credit card late fees at $8 is now in court, facing a lawsuit from the U.S. Chamber of Commerce and banking trade groups.
in May, federal judges appointed by trump Temporarily prevents this rule from taking effect.
About The Author
