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Wednesday, February 19, 2025

A Cap on Credit Card Annual Percentage Rates Could Severely Impact Issuer Strategies and Bottom Lines

A Cap On Aprs Could Severely Impact Issuer Strategies
Andrew Allen

Writer: Andrew Allen

Andrew Allen

Andrew Allen, Staff Writer

For nearly 20 years, Andrew has worked for financial institutions ranging from regional investment organizations to some of the largest banks in the world. At Wells Fargo, Andrew was a Consultant within the Insight and Innovation division. A graduate of the University of Georgia’s Terry College of Business, Andrew’s goal has been promoting personal financial wellness and solid money decisions. As a Staff Writer for CardRates, Andrew seeks to inform readers of solutions to help them on their path to financial freedom.

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Lillian Guevara-Castro

Editor: Lillian Guevara-Castro

Lillian Guevara-Castro

Lillian Guevara-Castro, Senior Editor

Lillian Guevara-Castro brings more than 30 years of editing and journalism experience to the CardRates team. She has worked at The Atlanta Journal and Constitution, Gwinnett Daily News, Gainesville Sun, and The New York Times, where she covered demographics, consumer issues, and the business and financial sectors. Lillian has a degree in journalism and communications from Georgia State University and brings her fact-checking expertise to ensure Digital Brands content is accurate and engaging.

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Adam West

Reviewer: Adam West

Adam West

Adam West, Managing Editor

Adam has interviewed over 1,000 finance experts since joining the CardRates team in 2016. He spearheads industry news coverage related to helping consumers achieve greater financial literacy and improved credit. He has more than 12 years of storytelling, editing, and design experience in print and online journalism and is most knowledgeable in the areas of credit scores, financial products and services, and the banking industry.

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  • Politicians favor imposing a 10% cap on credit card annual percentage rates to help Americans hang on to more of their money.
  • If adopted, issuers will likely increase fees on cards and other products to recoup lost revenue.
  • Credit cards could become a financial tool reserved for the wealthy and those with excellent credit scores if lenders turn to stricter underwriting practices

A proposed 10% cap on credit card Annual Percentage Rates (APRs) has created ripples in the credit card industry over the past few months. But those ripples could coalesce to form a tsunami — or perhaps a series of tsunamis — should politicians introduce legislation to make the proposed cap a reality.

Unsurprisingly, Vermont Senator Bernie Sanders, a proponent of corporate accountability, backs capping APRs on credit cards. Sanders is no stranger to standing up for the American consumer, and he recently announced on social media that “capitalism is broken.”

It would be one thing if Sanders and others in the Democratic party were the only politicians in favor of capping APRs, but President Donald Trump may prove to be an unlikely ally to Sanders on this issue. While on the campaign trail, Trump turned to X, formerly known as Twitter, to emphatically signal that he’s in favor of “a temporary cap on credit card interest rates.”

Politics can make for strange bedfellows. After all, Trump spoke highly of Pennsylvania Democrat John Fetterman (D), who’s been critical of Trump in the past, after the senator’s visit with the president at Mar-a-Lago in early January.

Trump siding with Democratic leaders on certain issues could be a signal that politicians on both sides of the aisle will put aside their differences to improve the country during Trump’s second term. But will implementing a cap on APRs help make America great again?

Unintended Consequences

Credit card use shows no signs of slowing down as Americans continue to navigate inflationary pressures. According to the Federal Reserve Bank of New York, credit card balances increased by more than 8% year over year to top $1 trillion during 2024’s third quarter

The possibility of accessing credit cards with reduced APRs may appeal to those who have a Pollyanna-esque view of how the business world works. But card issuers, especially public companies beholden to shareholders, know that revenue can’t just disappear from one line item without being replaced in another. 

Issuers will need to consider what steps to take to sustain profit levels should income derived from interest rate charges take a hit.

A card’s APR provides issuers with the means to seek compensation when a cardholder doesn’t pay their balance in full each month. Without that lever to pull, issuers could turn to other lending products to recover income.

Mortgages, home equity products, and vehicle loans could all face dramatic overhauls in their fee structures as lenders scramble to ramp up or introduce fees to make their loss of income more palatable.

Issuers could also turn to other components of credit cards to replace lost income. Today, fees on credit cards often accompany card programs that offer rewards, such as cash back benefits, discounts on merchandise and services, and travel perks. 

Premium and luxury cards that charge annual fees allow cardholders to enjoy enhanced rewards and access elite experiences, including private airport lounges and exclusive events. Issuers could also charge higher fees on elite credit cards to recoup lost income

Visa experiences examples
Visa Infinite® cardholders enjoy access to exclusive events.

Credit cards are ubiquitous today in the shopping experience. But that could all change if issuers tighten underwriting practices to only allow individuals with pristine credit to receive a credit card. The days of consumers having plenty of credit card options that come without annual fees may come to an end if issuers are forced to levy a cap on APRs.

In fact, the term “luxury credit card” may become an oxymoron if cards transition to a financial tool reserved only for the most creditworthy or wealthy.

These outcomes may not sit well with cardholders or issuers, but it’s not too early for businesses that issue credit cards to begin thinking about preparing themselves for a different competitive landscape in 2025.

Looking Ahead

It remains to be seen whether the Trump administration will place credit card APRs in its crosshairs in the early days of Trump’s second tenure in the Oval Office. 

But what’s the end game to government intervention into the structure and revenue sources of credit card issuers? Other problems may arise should consumers turn to high-interest products such as payday loans when lenders reject their applications for credit cards. 

If politicians begin playing whack-a-mole on consumer credit products, passing legislation to limit profits on one financing product after another, capitalism, or at least a portion of it, may fall into long-term disrepair.