Trump’s Proposed Credit Card Cap Spotlights Americans’ Debt: Would It Help?
Credit card debt is increasingly burdening millions of Americans. One such individual is Selena Cooper, a 26-year-old former paralegal. After losing her job during the government shutdown a few months ago, Selena faced severe financial strain. By October, she had already missed credit card payments, and her total debt across three cards had climbed to $6,000. With interest rates on her Capital One and American Express cards rising sharply—from 10% to 18% for Amex and doubling to 16% for Capital One—her situation became dire.
Trump’s proposal to cap credit card interest rates at 10% for one year, starting January 20, would help a little bit, but it’s still not going to get me out of debt,” she expressed, now relying on her photography business to cover minor expenses.
Rising Credit Card Interest Rates: A National Concern
Credit card interest rates have seen a dramatic rise in recent years, averaging around 22% as of November, compared to 13% a decade ago. Alarmingly, 37% of adults currently carry credit card balances, leading to an overall credit card debt exceeding $1 trillion in the U.S. According to Susan Schmidt, a portfolio manager at Exchange Capital Resources, consumers are feeling pinched, and they will continue to feel this pressure.
Trump’s Capping Proposal Faces Criticism
The proposal to cap credit card interest rates was met with immediate backlash from bank executives, who warn that such a cap could erode access to credit. Banks could respond by cutting credit limits or closing accounts deemed risky. In fact, the Consumer Financial Protection Bureau projects that interest charges will generate around $160 billion in 2024, money essential to banks’ revenue.
JP Morgan’s chief financial officer, Jeremy Barnum, cautioned that people will lose access to credit on a very extensive and broad basis, especially those who need it the most. Similarly, Citigroup’s CEO Jane Fraser warned of a severe impact on access to credit and on consumer spending across the country.
Many experts argue that a credit card cap may not provide the relief consumers need, emphasizing that it could lead banks to limit lending, especially to those with lower credit scores. A 10% cap may not be the right solution, Schmidt noted. She, along with Benedict Guttman-Kenney, an assistant finance professor at Rice University, pointed out that banks might seek to recoup lost revenue by raising annual fees or late charges. “People might not be better off,” Guttman-Kenney said, stressing that expenses could still remain high.
However, there is some optimistic analysis. A study from Vanderbilt University posits that a 10% cap could save Americans up to $100 billion annually in interest costs. This is something people would see, notice, and feel, said Brian Shearer, the study’s author, suggesting that it could have a substantial impact on household budgets.
Real Stories: The Human Side of Debt
Morgan, 31, shares her ongoing struggle with debt; since last May, she has been using her credit card for childcare expenses while unemployed. With approximately $6,700 in credit card debt, she has found herself losing sleep over financial worries. However, thanks to a military benefit program, she secured an interest rate of about 3%. If I had to pay the typical 27% interest, childcare wouldn’t have been an option, Morgan admitted.
She views Trump’s proposal as a step in the right direction, even hoping it comes to fruition, highlighting its rare focus on people over businesses.
Will the Proposal Gain Traction?
The discussion around capping credit card rates isn’t new and has previously garnered bipartisan support. Senators Josh Hawley and Bernie Sanders introduced a bill last year to limit interest rates to 10%. Recently, Senator Elizabeth Warren emphasized that if Trump truly championed this cause, he could mobilize Congress to act.
Yet, significant hurdles remain. House Speaker Mike Johnson recently distanced himself from the proposal, citing “negative secondary effects” and concerns about lending reductions. As Shearer notes, if the Trump administration retreats, it may be due to the intense lobbying from banks who see credit card interest as their cash cow.
In conclusion, while Trump’s proposed credit card cap illuminates a critical issue within American finances, its actual implementation faces numerous challenges. Understanding the implications for consumers, as well as the potential pushback from financial institutions, remains crucial for fostering ongoing dialogue about financial reform in the United States.