U.S. President Donald Trump’s proposal to cap credit card interest rates at 10% may provide short-term relief for some consumers, but is likely to trigger a broader credit crunch in the long run, experts say.
Earlier this month, President Trump told Truth Social that credit card companies have until January 20 to impose caps and that his administration will not allow Americans to be “ripped off” with interest rates of up to 20 to 30 percent.
Companies do not move an inch. So President Trump is urging Congress to pass legislation that would make the proposal law, drawing bipartisan support as well as criticism from prominent Republican politicians.
RSM chief economist Joseph Brusuelas told CBC News that an artificial cap on interest rates would “create a shortage of available credit” and could temporarily ease affordability pressures.
“Even if these policies are popular in the short term, over time they tend to have negative effects on the exact populations they are intended to help,” he said. This is because low-income households that rely on credit to make ends meet may have less access to credit and reduce spending accordingly.
Bruelas said it could ultimately have an even bigger impact on the economy.
“Yes, debt levels and household debt levels will improve, but they won’t be able to spend. The economy will slow down. Usually when the economy slows down, unemployment tends to rise,” he said.
“Once again, we are limiting access to credit to low-income households, and over time, at least for some, their employment status could be at risk as the economy slows.”
According to online financial market LendingTree, the average interest rate on credit cards in the United States was 23.79% in January. Interest rates for subprime borrowers can exceed 30 percent.
“Economic disaster”
President Trump is under pressure to act on the affordability promise he made during his 2024 presidential campaign, which included capping credit card interest rates as a countermeasure. Increase in household debt.
Most Republicans outside of the MAGA base say they are outraged by the administration’s handling of the cost-of-living file in its first year. According to Recent Angus Reid research.
The US banking sector is Much of that income From the interest rate lose billions From the upper limit of 10%, According to research from Vanderbilt University. The industry strongly condemned the proposal.
Speaking at the World Economic Forum in Davos, Switzerland, last week, JPMorgan Chase CEO Jamie Dimon said his bank would survive any losses. But he warned that the proposal would lead to an “economic disaster” if passed.
“It would take credit away from 80% of Americans. It’s their backup credit,” Dimon said, stressing that Trump’s proposal would hurt American households and small businesses more than the big credit card companies.
The American Bankers Association represents large financial institutions and some small financial institutions in the United States. said in a statement on January 9. He said the cap would “simply steer consumers towards less regulated, more expensive alternatives.”
Is your rewards program at risk?
10% interest rate capThis will also have a big impact on credit card rewards programs in the U.S., said Patrick Sojka, founder of Calgary-based Rewards Canada.
These programs are often funded by interest income, and some companies may want to “move that revenue elsewhere if they don’t have much revenue from credit cards or credit card co-branding,” he said. That may mean withdrawing perks.
Soika noted that premium cards such as American Express, Chase and Capital One promise great perks to consumers. “Cards may offer fewer perks. That’s a tough pill to swallow, because the U.S. market itself has the most perks for credit cards.”
“When it comes to earning points, miles and earning bonuses, no other market, including Canada, can match what you can do with a U.S. credit card.”
President Trump’s desire to cap interest rates is also shared by two unlikely allies in the progressive wing of the Democratic Party: Sen. Elizabeth Warren of Massachusetts and Sen. Bernie Sanders of Vermont.
meanwhile Recent interview with CNBCWarren said that after she touted her record on affordability in a speech, Trump called her and asked her to talk about credit card interest rate caps, a policy she has long advocated.
And last year, Sanders and Republican Sen. Josh Hawley submitted a bill Limit your credit card annual interest rate to 10% for five years.
“When major financial institutions charge more than 25% interest on credit cards, they are not in the business of making credit available. They are in the business of extortion and usury,” Sanders said. wrote in a statement at that time.
Earlier this month, Hawley used President Trump’s remarks to push for passage of the bill.
But some Republicans in Trump’s orbit have warned about the cap, including House Speaker Mike Johnson.nistration “We need to be very careful.” Along with suggestions.
“We’re working hard to reduce costs, but we don’t want any negative fallout,” Johnson told reporters.