What Impact Would a 10% Cap on Credit Card Interest Rates Have on Your Finances

Trump Proposes Temporary 10% Cap on Credit Card Interest Rates

Credit card interest rates in the U.S. currently average about 23%, with individuals who have lower credit scores sometimes facing rates as high as 36%. Source: Nam Y. Huh/AP

In an effort to provide financial relief to American families, former President Trump has suggested implementing a temporary 10% ceiling on credit card interest rates. While he has not outlined the specifics of how this cap would be put into effect, he expressed a desire for it to start on January 20.

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On Friday, Trump stated on social media, “We will no longer allow credit card companies to take advantage of the American public by charging interest rates of 20% to 30% or even higher。”.

This idea revives a plan Trump mentioned during the 2024 presidential race. Credit card companies have already voiced opposition, arguing that such a cap could actually harm the consumers it aims to protect. Stocks of major issuers like Capital One and JPMorgan Chase dropped in pre-market trading on Monday.

What Would a 10% Cap Mean for Consumers?

According to a recent analysis from Vanderbilt University, limiting credit card interest rates to 10% could save U.S. households about $100 billion annually in interest. This could result in significant savings for individuals.

For example, someone carrying a $5,000 balance at a 24% interest rate pays roughly $100 per month in interest. If the rate were capped at 10%, the monthly interest would fall to about $41, allowing the borrower to pay off the debt faster and save around $700 in interest over a year.

Current Credit Card Interest Rates

• The average credit card interest rate is about 23%, and rates have not dipped below 10% since at least 1994, according to the Federal Reserve.
• Those with lower credit scores may face rates up to 36%, and store credit cards often charge over 30%.
• Federal credit unions are already legally restricted to a maximum rate of 18%.

Ted Rossman, a senior analyst at Bankrate, notes that high rates are partly due to increased delinquencies and charge-offs, since credit card debt is unsecured. In contrast, auto loans are secured by the vehicle itself, which lenders can repossess if payments are missed.

Currently, about 2.98% of credit card balances are delinquent, up from less than 2% during parts of 2021 and 2022, when pandemic relief measures helped keep late payments down. This rate has recently stabilized.

Potential Downsides of a Rate Cap

The credit card industry warns that a strict interest rate limit could make it harder for many people—especially those with lower incomes or credit scores—to obtain credit cards.

One industry analysis suggests that nearly 90% of cardholders could lose access to credit, either through account closures or reduced credit limits, if such a cap were implemented.

Industry groups, including the American Bankers Association, argue that the cap could push consumers toward less regulated and potentially more expensive borrowing options.

If the cap only applied to new purchases, some experts believe issuers might restrict new transactions for those with lower credit scores, and existing balances would remain under previous terms.

Consumers could turn to alternatives like “buy now, pay later” services, which sometimes offer interest-free short-term loans but can charge up to 36% APR for longer-term financing.

Impact on Credit Card Rewards

If lending becomes less profitable, issuers may reduce the generosity of rewards programs. The Vanderbilt study estimates a $27 billion reduction in rewards for cardholders with FICO scores below 760. Issuers might also introduce or raise annual fees to offset lost revenue.

Which Companies Could Be Most Affected?

Credit card providers that serve a broad range of customers, such as Capital One Financial and Synchrony Financial, could be hit hardest. Their stock prices typically fall when such proposals are discussed, and they dropped about 10% in premarket trading on Monday. Other major issuers like JPMorgan Chase, Citigroup, and American Express also saw declines.

How Would a Cap Be Implemented?

The method for enforcing a rate cap remains unclear. Most legal experts agree that the president cannot set such a cap by executive order; it would require Congressional action.

Senator Roger Marshall has stated on social media that he intends to lead legislation to reduce costs for American families. Bipartisan bills to temporarily cap credit card interest rates have been introduced in both the House and Senate, with support from lawmakers such as Bernie Sanders and Elizabeth Warren.

Senator Warren has said she would work to pass a rate cap if Trump is serious about the proposal, but she also noted that Trump has previously tried to dismantle the Consumer Financial Protection Bureau (CFPB).

The CFPB, which oversees consumer financial products, attempted to set an $8 limit on credit card late fees, but a federal judge blocked the rule from taking effect.

This article may be updated as new information becomes available.

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