Does Trump Actually Know Credit Card Interest Rates?
On Friday, President Donald Trump called for a reduction in credit card interest rates to 10% for one year, writing on Truth Social that Americans are being “rip off” by issuers. Experts say that won’t be as easy as it sounds.
Forcing credit card issuers to lower fees is a policy that has drawn bipartisan support from lawmakers in the past, and Trump made it a plank of his 2024 presidential campaign. It’s not hard to see the appeal: The Federal Reserve says people who roll over a balance every month pay an average APR (annual percentage rate) of 22.3%. The average credit card borrower owes a little more than $6,700, according to credit bureau Experian.
But lowering rates isn’t something that can be done with a stroke of the president’s pen — and if Trump were to try to do this with an executive order, he could expect swift legislative backlash.
“Banks can be challenged very quickly, and they will probably have an easy case for imposing a ban on this,” said Danielle Zanzalari, an assistant professor of economics at Seton Hall University.
What can lower credit card rates?
Zanzalari points out that existing laws such as the Truth in Lending Act give banks wide latitude when it comes to setting rates. Legislation may be needed to enforce interest rates into law.
“Congress can pass this if they want,” Zanzalari said.
In this case, the support of the president and the bully pulpit he commands can be useful. Lawmakers from both parties have put aside their differences to try to expand credit cards more than once in recent years, but neither has succeeded.
The mere threat of a cap was enough to send financial stocks lower on Monday, however. Megabanks like JPMorgan Chase, Bank of America, Citigroup and Wells Fargo all fell into the red. Other major credit card makers, such as American Express and Capital One, continued to fall even more sharply.
That’s because unlike loans secured by a home, car or other property, credit card issuers have no protection if the borrower defaults. Charging high-risk borrowers high interest rates is a key strategy used by banks to minimize losses if borrowers default, so losing that option would be a major threat to business.
“There is nothing you should take. Unsecured debt is very dangerous,” said Zanzalari.
According to a study recently published by the Consumer Financial Protection Bureau, the average APR for store credit cards — often the easiest type of card for someone with a low FICO score to get — is 31.3%.
Credit card rewards, lending access may be limited
The latest Fed data puts America’s credit card debt at $1.2 trillion. A refund that drops 15 percentage points on a borrower’s payment terms — even for a short time — may sound like a good idea. All other things being equal, lower interest rates can mean lower monthly payments, and paying less in interest can help you pay off your debts much faster.
A research paper from Vanderbilt University says that capping credit card interest rates at 10% could save Americans $100 billion a year — and makes the case that banks can’t do that. However, it acknowledges that banks are likely to significantly reduce their rewards programs, which would affect all borrowers except those with FICO scores of 760 or higher — points above the national average of 715.
In fact, it would have cut more than just rewards if Trump had been able to greenlight his proposal, according to credit expert John Ulzheimer. Banks will likely respond to the restriction by lowering borrowers’ credit limits and closing cards.
The result, he says: less access to credit for many Americans.
The biggest impact would be on people with poor credit, as limiting access to credit has a negative impact on a person’s credit score in and of itself.
“It should scare everyone with a bad credit score,” he said. “History has shown how lenders will react when something like this happens, and they tend to be less risk-averse to people with lower credit scores.”
Ulzheimer added that while Trump’s proposal calls for a one-year moratorium starting on January 20, the financial impact on borrowers could be much longer.
“That’s better than setting it at 10% indefinitely, [but] the problem is, if the bank closes my credit card because of the cap, then who cares if it’s only 12 months? I still lost the card,” he said.
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