Trump wants to limit interest on credit cards to 10%. Is that a good idea?

According to experts, US President Donald Trump’s proposal to limit interest rates on credit cards to 10 percent may provide short-term relief to some consumers, but is likely to create a widespread credit crisis in the long run.

Earlier this month, Trump wrote on Truth Social that credit card companies had until January 20 to impose the caps, and that his administration would not “charge Americans” with rates up 20 or 30 percent.

The companies have not budged. So Trump is urging Congress to pass legislation that would turn the proposal into law, drawing some bipartisan support as well as criticism from prominent Republican politicians.

While it may relieve affordability pressures in the short term, an artificial cap on interest rates “will create a reduction in the availability of credit,” RSM chief economist Joseph Brusuelas told CBC News.

“Such policies, even if they prove popular in the short term, harm over time exactly the populations they seek to help,” he said, “because low-income households that rely on credit to make ends meet will have less access to it and may scale back their spending in response.”

According to Brusuelas, this could ultimately have a major impact on the economy.

“Yes, it will help the debt level, the household debt level. But they will not be able to spend. The economy has slowed down. Usually when the economy slows down, unemployment goes up,” he said.

“Then, you’re restricting the availability of credit to downmarket households. And then over time, at least for some people, their employment situation may be in jeopardy as the economy slows.”

The average U.S. credit card interest rate was 23.79 percent in January, according to online financial marketplace LendingTree. Rates for Subprime Borrowers may exceed 30 percent.

‘the economic crisis’

Trump is under pressure to act on affordability promises he made during his 2024 presidential campaign, including a credit card rate cap as a means to deal with the pandemic. increasing household debt.

Most Republicans outside his MAGA base say they are troubled by how the administration handled the cost of living during its first year, according to Recent Angus Reid survey.

the US banking sector, which generates most of its income From interest rates, could lose billions From the limit of 10 percent, According to a study by Vanderbilt University. The industry has strongly condemned this proposal.

Speaking at the World Economic Forum in Davos, Switzerland, last week, JPMorganChase CEO Jamie Dimon said his bank would avoid any losses. from a hat – but warned that the proposal, if enacted, would lead to an “economic disaster”.

“It would remove credit from 80 percent of Americans, and this is their back-up credit,” Dimon said. He emphasized that Trump’s proposal would hurt American families and small businesses more than the major credit card companies.

The American Bankers Association, which represents the nation’s major lenders and some of its smaller financial institutions. A statement dated January 9 said This limit “will simply drive consumers toward less regulated, more expensive alternatives.”

Are rewards programs in jeopardy?

10 percent cap on interest ratesAccording to Patrick Sojka, Calgary-based founder of Rewards Canada, it will also have a significant impact on U.S. credit card rewards programs.

Those programs are often funded by income earned on interest, he said, and some companies “may want to shift revenue around if they’re not earning as much from their credit cards or credit card partnerships.” This may mean withdrawal of rewards features.

“The cards may be less profitable, which is hard to swallow because the U.S. market is the most profitable for credit cards,” Sojka said, adding that premium cards including American Express, Chase and Capital One promise big benefits to consumers.

“When it comes to earning points and miles and getting bonuses, no other market – not even Canada – comes close to what you can do on your US credit cards.”

Trump’s desire to set rates is shared with two unlikely allies in the progressive wing of the Democratic Party: Senator Elizabeth Warren of Massachusetts and Senator Bernie Sanders of Vermont.

during A recent interview with CNBCWarren said Trump had called her to speak about a potential credit card interest rate cap – a policy she has long advocated – after he criticized her record on affordability in a speech.

And last year, Sanders and Republican Senator Josh Hawley introduced a bill Limiting the annual percentage rate on credit cards to 10 percent for five years.

Sanders said, “When large financial institutions charge more than 25 percent interest on credit cards, they are not in the business of providing credit. They are engaged in extortion and credit evasion.” wrote in a statement In those days.

Earlier this month, Hawley used Trump’s statements Emphasis on passing the bill.

But some Republicans supporting Trump have warned against the limit, including US House Speaker Mike Johnson, who saidlanguishing Must be “very careful” With proposal.

“In our zeal to reduce costs, you don’t want to have negative secondary effects,” Johnson told reporters.