Trump Proposes 10% Credit Card Interest Cap: Impact on Consumers Explained

President Trump’s recent proposal to impose a 10% cap on credit card interest rates for one year has raised significant discussions about its potential impact on consumers and the economy. Financial experts warn that while consumers could save billions, the plan might adversely affect those with lower credit scores.

Proposed Interest Rate Cap and Its Implications

The proposed cap, which has gained unexpected bipartisan attention, was articulated by Mr. Trump as a way to protect consumers from excessive charges by credit card issuers. However, the banking sector has voiced concerns about potential negative consequences.

Consumer Savings and Borrower Impact

According to reports, the average credit card interest rate currently hovers around 24%, with individuals having poor credit scores facing rates as high as 36%. A study by Vanderbilt University estimated that implementing a 10% interest rate cap could save consumers approximately $100 billion annually in reduced interest payments.

• A cardholder with a $5,000 balance would see their monthly interest payment drop from around $100 to $42.

Despite these attractive figures, industry analysts caution that a cap could lead banks to restrict credit access, particularly for low-income consumers. Such restrictions might result in these individuals relying on higher-cost loans, negatively impacting their financial stability.

Economic Considerations

Credit card spending constitutes a significant portion of overall consumer expenditure, accounting for 30% to 40% of annual spending. Decreased access to credit for lower-income Americans could lead to an approximate 5% drop in consumer spending, according to Morgan Stanley analysts. This decline could counterbalance any increase in spending resulting from lower credit card rates.

Industry Response and Concerns

The American Bankers Association has expressed strong opposition to the proposed cap, arguing that it would push consumers toward unregulated and more expensive financial products, such as payday loans. Experts also warn that if the cap is enforced, banks might raise annual fees or diminish rewards programs to maintain profitability.

• Tiffany Funk, president of point.me, highlighted that without a profitable interest rate structure, the value of credit card rewards could decline significantly.

High Credit Card Rates Explained

Current high-interest rates on credit cards are attributed to the unsecured nature of the debt, which lacks an underlying asset like a car or a home. This structure poses a higher risk to lenders, leading to elevated rates.

Legislative Challenges to Implementation

Experts raise questions about Trump’s authority to impose such a cap without congressional approval. While some believe there may be support for a higher cap, implementing a specific rate such as 10% could face hurdles in Congress. A bipartisan initiative, known as the “Percent Credit Card Interest Rate Cap Act,” introduced by Senator Bernie Sanders in 2025, could provide a framework for legislative support if there is mobilization among lawmakers.

Ultimately, whether this proposal advances remains to be seen, as significant challenges await in the legislative process. The potential outcomes for consumers and the economy hang in balance as discussions continue.

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