Trump Proposes Temporary 10 Percent Cap on Credit Card Interest Rates

This illustration picture shows debit and credit cards arranged on a desk in Arlington, Va. on April 6, 2020. Olivier Douliery/AFP via Getty Images

Former President Donald Trump has proposed a 10 percent temporary cap on credit card interest rates, which have spiked in recent years.

According to LendingTree data, the average interest rate on new credit card offers is nearly 25 percent. Other cards carry higher rates, such as retail credit cards that charge holders an all-time high of 30.45 percent.

The Republican presidential candidate said it is time to rein in the charges.

“While working Americans catch up, we’re going to put a temporary cap on credit card interest rates,” Trump said at his Long Island rally on Sept. 18. “We’re going to cap it at around 10 percent. We can’t let them make 25 and 30 percent.”

In the second quarter, credit card debt reached a nominal all-time high of $1.14 trillion, according to the Federal Reserve Bank of New York.

The federal government published two reports earlier this year that placed the spotlight on credit card interest rates.

Consumer Financial Protection Bureau regulators claimed that large financial institutions are charging higher credit card interest rates than small banks and credit unions. They later alleged that credit card companies have charged higher rates than their lending costs.

“CFPB research has found high levels of concentration in the consumer credit card market and evidence of practices that inhibit consumers’ ability to find alternatives to expensive credit card products,” the federal agency said. “These practices may help explain why credit card issuers have been able to prop up high interest rates to fuel profits.”

While Trump’s proposal was met with cheers and applause from the Long Island crowd, the financial industry has expressed resistance to previous rate cap proposals.

“While we don’t know the specific details of this proposal, ABA has opposed similar interest rate cap proposals in the past, including one from Sen. Bernie Sanders and Rep. Alexandra Ocasio-Cortez during the 2020 campaign, because they would result in the loss of credit for the very consumers who need it the most,“ a spokesperson for the American Bankers Association told The Epoch Times. ”Instead, these consumers would be forced to use less-regulated, more risky alternatives including payday lenders and loan sharks.”

In a statement to The Epoch Times, the Consumer Bankers Association declined to comment on Trump’s particular proposal but pointed to the industry’s long standing opposition to what it says are “government price controls on credit card interest rate proposals from both Republicans and Democrats,” adding that “these price controls only harm consumers.”

Peter Schiff, chief economist and global strategist at Euro Pacific Management, said it is akin to price controls.

“He promised to cap credit card interest rates at 10%. That would destroy the entire industry. Millions of Americans would lose their credit cards,” Schiff said on social media platform X.

Former President Donald Trump during a press conference at Trump National Golf Club, in Bedminster, N.J., on Aug. 15, 2024. Jeenah Moon/Reuters

If public policymakers determine what rate is too high and institute limits, businesses will trim the supply of credit and prioritize borrowers who are considered less risk, says John Berlau, the senior fellow and director of finance policy at the Competitive Enterprise Institute (CEI).

“If Trump’s proposal were enacted, credit cards would much less available to many Americans with less-than-perfect credit scores. But his proposal would not eliminate those American’s need for credit,” Berlau told The Epoch Times.

Some of these criticisms are supported by research over the years.

A July 2023 study examined Illinois’ 36 percent rate cap and discovered that the state’s interest-rate cap reduced the number of loans to subprime borrowers—consumers labeled as a high credit risk for lenders— by 38 percent.

Rep. Alexandria Ocasio-Cortez (D-N.Y.) speaks during a hearing in Washington on Aug. 24, 2020. Tom Williams/Pool via Reuters

In 2018, World Bank economists published a paper that found various side effects of interest rate caps, including lower credit supply, increases in other fees, and smaller approval rates for risky borrowers.

Without access to traditional credit instruments, low-income households would be forced to turn to costly alternatives, such as payday loans, which have high interest rates, Berlau notes.

“It would lead those who desire credit to options they may find less appealing than credit cards, including payday loans, pawn shops, and rent-to-own plans for items such as electronics and appliances,” he said. “While there is nothing inherently wrong with these options, consumers should have the choice of credit cards if they agree to the interest charges.”

A 2012 Pew Research study found that consumers will use payday loans when their conventional banking system needs are unmet.

According to the Consumer Financial Protection Bureau, the national average payday loan interest rate is nearly 400 percent.

Despite the proposal’s many criticisms, polling on the issue suggests a sizable portion of Americans back the idea. A 2019 LendingTree survey found that 53 percent of U.S. cardholders support a 15 percent cap rate, and 26 percent think the maximum rate cap could be lower.

‘Americans Are Being Crushed’

In recent years, lawmakers have also tried to impose caps on credit card rates.

In May 2019, Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) released a plan to cap credit card rates at 15 percent. Sanders discussed the plan again earlier this year, describing today’s rates as extortion.

Sen. Josh Hawley (R-Mo.) introduced legislation last year to cap rates at 18 percent.

Sen. Josh Hawley (R-Mo.) delivers remarks during the Senate Judiciary Committee confirmation hearing for Supreme Court nominee Judge Ketanji Brown Jackson in the Hart Senate Office Building on Capitol Hill in Washington, on March 21, 2022. Drew Angerer/Getty Images

“Americans are being crushed under the weight of record credit card debt—and the biggest banks are just getting richer,” Sen. Hawley said in a statement last September. “The government was quick to bail out the banks just this spring, but has ignored working people struggling to get ahead. Capping the maximum credit card interest rate is fair, common-sense, and gives the working class a chance.”

A coalition of Democrat senators, including Sen. Elizabeth Warren (D-Mass.), submitted a bill in 2022 addressing record credit card debt by restoring states’ ability to consumer loan interest rates.

The current administration has also grappled with credit card late fees. The Consumer Financial Protection Bureau (CFPB) unveiled new regulations in March that would establish a ceiling of $8 for most credit card late fees.