Trump wants to cap credit card interest at 10%. Is that good for consumers and the economy?
U.S. President Donald Trump's proposal that credit card interest rates be capped at 10 per cent could bring short-term relief to some consumers but is likely to cause a broader credit crisis in the long run, according to experts.Earlier this month, Trump wrote on Truth Social that credit card companies had until Jan. 20 to impose the cap, and that his administration won't let Americans be "ripped off" by rates of up to 20 or 30 per cent. The companies haven't budged. So Trump is urging Congress to pass legislation that will turn the proposal into law, drawing some bipartisan support as well as criticism from prominent Republican politicians. While it might briefly relieve some affordability pressures, an artificial cap on interest rates will "create a scarcity in the availability of credit," RSM chief economist Joseph Brusuelas told CBC News."Such policies, even if they prove popular in the short-term, over time tend to hurt the exact populations that they intend to help," he said, because lower-income households that rely on credit to make ends meet will have less access to it and may pull back on their spending in response.Ultimately, that could have larger ramifications for the economy, according to Brusuelas."Yes, it'll help on debt levels, household debt levels. But they won't be able to spend. The economy slows. Usually when the economy slows, unemployment tends to rise," he said.Dimon is shown at the 56th annual World Economic Forum meeting last week, where he criticized Trump's proposed 10 per cent cap on credit card interest rates. (Denis Balibouse/Reuters)"So again, you're restricting the availability of credit to downmarket households. And then over time, for some at least, their employment status may be put in jeopardy as the economy slows." The average U.S. credit card interest rate was 23.79 per cent in January, according to the online financial marketplace LendingTree. Rates for subprime borrowers can exceed 30 per cent.'Economic disaster'Trump has been under pressure to act on the affordability promises made during his 2024 presidential campaign, which included a credit card rate cap as a means of tackling rising household debt.Most Republicans outside of his MAGA base say they are upset with how the administration handled the cost of living file during its first year, according to a recent Angus Reid survey.The U.S. president, shown here last fall, is under pressure to act on the affordability promises he made during the 2024 presidential campaign. (Kevin Lamarque/Reuters)The U.S. banking sector, which generates much of its income from interest rates, could lose billions from a 10 per cent cap, according to a study from Vanderbilt University. The industry has strongly denounced the proposal.While speaking at the World Economic Forum in Davos, Switzerland, last week, JPMorganChase CEO Jamie Dimon said his bank would survive any losses from a cap — but warned that the proposal, if enacted, would lead to "economic disaster.""It would remove credit from 80 per cent of Americans, and that is their back-up credit," said Dimon, stressing that Trump's proposal would hurt U.S. households and small businesses more than major credit card companies. The American Bankers Association, which represents the country's major lenders and some of its smaller financial institutions, said in a Jan. 9 statement that a cap "would only drive consumers toward less regulated, more costly alternatives."Rewards programs at risk?A 10 per cent cap on interest rates could also have a significant impact on U.S. credit card rewards programs, according to Patrick Sojka, the Calgary-based founder of Rewards Canada.Those programs are often funded by the income earned on interest, and some companies might want to "shift revenues around if they're not earning as much from their credit cards or credit card partnerships," he said. That could mean pulling back on rewards perks.Rewards programs are often funded by the income earned on interest, so less income could lead credit card companies to back away from such programs. (David Donnelly/CBC)"The cards may be less rewarding, which is a tough pill to swallow because the U.S. market itself is the most rewarding for credit cards," said Sojka, noting that premium cards including American Express, Chase and Capital One promise big perks 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 U.S. credit cards." Trump’s desire to cap rates is shared with two unlikely allies in the progressive wing of the Democratic Party: Sen. Elizabeth Warren of Massachusetts and Sen. Bernie Sanders of Vermont.During a recent interview with CNBC, Warren said that Trump called her to speak about a potential credit card interest rate cap — a policy she's long been advocating for — after she went after his record on affordability in a speech. And last year, Sanders and Republican Sen. Josh Hawley introduced a bill to limit the annual percentage rate on credit cards to 10 per cent for five years. "When large financial institutions charge over 25 per cent interest on credit cards, they are not engaged in the business of making credit available. They are engaged in extortion and loan sharking," Sanders wrote in a statement at the time. Earlier this month, Hawley used Trump’s statements to push for the bill’s passage. But some Republicans in Trump's orbit have cautioned against the cap, including U.S. House Speaker Mike Johnson, who said the administration should be "very careful" with the proposal."In our zeal to bring down costs, you don’t want to have negative secondary effects,” Johnson told reporters.
