The handwringing over Donald Trump’s credit card interest rate cap looks overdone and comically so.
For one thing, a lot of Republicans will oppose it because the bank lobby opposes it, and also because Democrats support it.
For another, Trump has all kinds of ideas, and while Venezuela’s unplugged radar systems attest to the peril of ignoring those ideas just because they often sound crazy, capping card rates by decree will likely prove more difficult than abducting a hapless dictator from a Third World country.
Banks would probably sue if Trump doesn’t go through Congress. JPMorgan’s CFO Jeremy Barnum described the cap on Tuesday as a “weakly supported directive” that’d “radically change our business.” You can draw your own conclusions, but generally speaking, unsupported edicts aren’t binding in democracies, which I suppose begs the question.
True to his autocratic ambitions, Trump pretended this week that the cap’s already law and demanded banks comply by the end of the month. “Some of them are charging almost 30%,” he complained. “People don’t know they’re paying 30%. [Banks] really abused the credit cards.”
“Amen, brother!” shouted Elizabeth Warren, who as it turns out might’ve been the inspiration for Trump’s latest exercise in scapegoating. “My point was he had not lifted a finger to get something through on credit card interest rate caps,” Warren told CNBC Wednesday, summarizing a speech she gave at the National Press Club.
Shortly after that speech, Trump called Warren and no, that’s not surprising. Trump’s a guy who’ll threaten you with the unspeakable one day then take you for a burger the next. He has no principles. If it’s expedient, he’ll work with you no matter who you are. This is a man who’s on-again, off-again friends with Kim Jong-Un.
Warren was amenable: “I said, ‘Great, let’s get something done.'” Spoiler alert: It’s not that easy. Maybe “something” will indeed get done — say, for instance, finally getting movement on the Credit Card Competition Act — but the interest cap’s probably a non-starter.
Supporting an ad hoc Trump lark with the potential to materially dent the bottom line for America’s largest banks is a dicey proposition for many congressional Republicans. Those aren’t the kind of phone calls GOP lawmakers want to field. And yet, they don’t want to end up on the wrong end of an early-morning TruthSocial tirade either, so who knows.
What I do know — and this is important to bear in mind as you peruse the reaction from the C-suite — is that any and all attempts on the part of government to circumscribe banks’ lines of business are presented in existential terms by management. If it’s a curb, a limit or a regulation, any bank executive worth his or her salt will pretend that if implemented and imposed strictly, it’ll be the end of the world.
True to form, Barnum spoke in ominous terms of Trump’s proposal which, he said, would “be very bad for consumers [and] very bad for the economy.” “People will lose access to credit — like on a very, very extensive and broad basis, especially the people who need it the most, honestly,” he added, on the bank’s earnings call. Wells Fargo’s CFO warned of “significant negative impact [on] credit availability for a wide spectrum of people.”
Jane Fraser went even further, saying the “vast majority of consumers and businesses [would] lose access to credit cards.” “You’d be left with [only] the wealthy having access and nobody wants that,” she added. Brian Moynihan was a bit less hyperbolic. “Less people will get credit cards and the balance available to them on those credit cards will also be restricted,” he told analysts.
The bank lobby mobilized to release a joint statement. “Evidence shows that a 10% interest rate cap would be devastating for millions of American families and small business owners who rely on and value their credit cards, the very consumers this proposal intends to help,” trade groups said.
And on and on. You get the idea: It’d be bad if China nuked Los Angeles, but forced to choose between a nuclear holocaust and a 10% one-year credit card interest cap… well, it’s a tough call.
To be sure, there would be an impact on borrowers with poor credit. Specifically, they wouldn’t be able to get credit cards, and credit cards are one of the quickest ways to improve or establish one’s credit history. And you need credit if you’re going to play the game, so to speak.
But don’t kid yourself: Banks are concerned about their bottom line, not about consumers’ access to credit. Interest fees were more than $160 billion in 2024, according to Warren’s pet project, the CFPB, which, ironically in this context, the Trump administration’s been keen to shutter.
On the consumer side, the latest update from the NY Fed shows Americans’ credit card debt hit a new record north of $1.23 trillion in Q3 of last year, as illustrated below.
The number of open cards likewise hit a new record at 642 million — so, two for every man, woman and child in the country. Nearly one in four US adults carries a balance.
Fed data shows the average card rate was 21% in November, down from a high of 21.76% in August of 2022. If Trump gets his way on this — and he won’t — the total savings for Americans would be about $100 billion per year, on Vanderbilt’s reckoning.
Presumably, some of that savings — the math works out to ~$900 per person — could go towards discretionary purchases, perhaps offsetting some of the spending drag banks swear would materialize in the event they’re forced to scale back card offerings. But that’s admittedly not the safest of assumptions.
It’s true that banks can’t be expected to run loss-making operations for the sake of charity, and it’s surely the case that a lot of current product offerings would be unprofitable overnight in a scenario where rates are capped at 10%.
But there are ways to save money. I don’t know about anybody else, but I get new credit card offers every, single day either in my email inbox or via physical mail. It’s not free to produce those marketing campaigns and I don’t even want to know how much Capital One, for example, pays Samuel L. Jackson and Jennifer Garner to advertise their cards. Those are A-listers.
Anyway, this isn’t going to work for Trump. This is a mid-term year. What’s it going to look like for the GOP if he partners with Bernie Sanders, AOC and Warren on a quixotic attempt to rescue Americans from usury? And how’s he going to square that with his administration’s efforts to undermine the CFPB?
If he tries to go through Congress, Republicans will just block it. “[It’s] not something — I’m not out there advocating for it, let’s put it that way,” John Thune remarked.
Mike Johnson summed it up best. “The president’s the ideas guy,” he said. “I wouldn’t get too spun up about ideas that are out of the box.”
Warren, though, suggested Trump could get it done if he’s willing to assert the same dictatorial authority he does on virtually every other issue. “I told him that Congress can pass legislation to cap credit card rates,” she went on, describing her phone call with Trump. “If he’ll actually fight for it.”
Warren playing a smart game on this one. No downside…. Either she gets to show trump is full of hot air or she co owns some signature legislation.
Trump doesn’t care if it actually passes Congress or not. It’s another talking point at his rallies “I lowered your credit card interest rates!”. Even when it doesn’t happen he’ll still take credit for it and the 30% who make up his die-hard MAGA base will think they’re paying less interest every month because they don’t know how to calculate 23% of $4,839 divided by 12.
Won’t someone please think of the payment processors?
The truth is that the largest credit card issuers function as an unregulated monopoly. On Monday morning do the bank executives in charge of setting credit card rates use burner phones to establish interest rates for the week? No free market controls there.
The top 3 banks control over 60% (at least) of credit card balances.
“Nearly one in four US adults carries a balance.”
Out on a limb here. One in eight would lose access. Homelessness would rise to a certain degree.
If a credit card is what keeps someone from becoming homeless, then it’s likely just a matter of time(sad as it is).
Can anyone explain why there aren’t credit card rates that could work other than +20 or 10. Isn’t there a door 3. A stable genius, Claude and the select 100 should be able to come up with something.
For what it’s worth — not financial advice, btw — you can have a blast with credit cards once your score’s above 760 and you have a solid six-figure income. The thing to do is get cards that offer you a meaningful sign-up bonus (e.g., $500 statement credit when you spend $3,000 during the first 90 days of card opening), a prolonged 0% teaser rate (e.g., at least 12 statement periods) and cash back matching during the first year. Money’s fungible, so if you get, say, a $25k limit, you divert $10k-$15k in spending over the course of the year to a high-interest savings account, always being sure to keep the card balance <30% of the limit (above that hits your score), pocket your bonus, always use the cash back as a statement credit and then when the teaser period’s over, cash out of your high-yield savings account and pay the whole balance down to zero. It’s not a lot of money, but between the sign-up bonus, the cash back, the cash back matching and the 3.5% on the $15k over a year, you can basically make $1,000. If you do that for three of them at once (which is doable if you stagger the hard pulls so that they don’t just pile up), well then you’re at $3,000 in free money. Throw in a business card or two (and those balances don’t show on your personal credit profile, only the credit pulls), and you can make yourself $5,000 over 12-18 months doing absolutely nothing. The trick is spacing out the credit pulls right so you don’t torpedo your score. Long story short, if you know what you’re doing, banks should be paying you to have a credit card, not the other way around.
Dang, didn’t know H was into churning! I’m probably due for a new card but need to cancel my Delta card first.
Just curious, did you use any AI to come up with that?
No, I used extensive experience. I mean, the key underlying principle is that money’s fungible. It’s the simplest of simple dictums, but most people fail to appreciate the doors it unlocks once you embrace it and apply it.
A credit card with a $25k limit and 0% intro APR for 21 months with a sign-up statement credit bonus, cash back and cash back matching, is a de facto 21-month, no-interest loan where you’re paid to take the money (the bonus) and then paid regularly to use it (the cash back and the cash back matching).
As long as you use that loan to pay for purchases you would’ve made anyway (if you go out and buy dumb stuff, you’re obviously defeating the whole purpose) and then put the unspent money into a high-yield savings account with no fees, it’s just a positive carry trade, and the best kind: The financing cost isn’t just 0%, it’s actually negative in your favor via the opening reward bonus and cash back / cash back match, which is to say the lender’s paying you on top of the +3.5% (or whatever) you’re getting on the other leg (i.e. on the high-yield savings account). You’re basically borrowing in a negative-yielder and investing in a high-yielder, except it’s all in the same currency.
The other caveat (i.e., in addition to the necessity of being careful about how many hard pulls you’re putting on your credit report — because if you don’t learn how to game that, you’ll torch your score — and managing the balances so that they never exceed 50%, at most, of a given card’s limit — because going over that will tank your score too), is that this is only worth the time and effort if you’re sure you’re going to be approved for at least $10k and ideally much, much more on every card. You’re only going to be able to use half of the credit line on each card if you want to shield your score, so you really need three with $20k-$25k limits (e.g., so you can play with ~$30k-$40k) in order for this to add up to any meaningful amount of money.
Also (and I hope this goes without saying) you want to already have a house and a car before you go out and do anything like this. Because if you try to get a mortgage, or even a car lease, and they see all these cards on your credit report, they’re likely to deny you unless you can show so much income that everything else is irrelevant.
Oh, and this probably isn’t the best idea for married people with lots of children because if something happens to you, they’re going to have pay those cards off. So… consider your personal circumstances. And, again, NOT financial advice.
I listened to a podcast on credit card rates. I can’t recall the details – honestly it was rather boring – but the gist of it was that 1) delinquency rates are nowhere remotely near 20% (checked data: currently 3%, in GFC was only 7%), 2) much of the rate goes to fund all the points and perks as well as to marketing, 3) the savviest and highest-income cardholders are “transactors” who get the perks and don’t pay the rates, 4) the cardholders who pay most of the rates aren’t in a position to use most of the perks (struggling to keep up with your CC debt <> jetting off to Italy on points).
It seems like the world might be a fairer place if there were cards with much lower rates and no perks. There should be room for high-rate cards for subprime consumers or young consumers starting to build credit. Regardless, making that change abruptly will have major unintended consequences, cure worse than disease style.
There should be no perks. Many retailers are starting to add a percentage to bills to cover the card fee they are charged to cover rewards or points the cards offer users.
Penalty rates for missing payments can exceed 29%. I can understand being assessed a penalty, but 30% on the remaining balance! I would love to see bank execs dragged-out in front of an irate House investigative committee in order to explain their interest rates, fees, penalties, and profits. That would be fighting for Main Street, but I do not envision that happening anytime soon.
For example, if you are late by a day paying the entire balance it can cost a sizable amount for the next 2 months on many cards. For the banks cards are a ‘heads I win tails you lose’ affair.