Credit Card Interest Rate Cap Could Harm Most Cardholders, ABA Warns

President Donald Trump’s call to place a cap on credit card interest rates may not lead to financial savings for most U.S. cardholders, according to a new report from the American Bankers Association (ABA).

In fact, a 10% cap on card rates would likely have devastating impacts for many consumers, the association said, supporting the warnings of credit card issuers that understand how a cap would have negative consequences for cardholders.

“If the Hawley-Sanders legislation is enacted, between 74% and 85% of open credit card accounts nationwide would be closed or have their credit lines drastically reduced, effectively eliminating the card as a spending tool/vital source of liquidity for individuals,” the ABA wrote in its report concerning the proposed cap.

Moreover, cardholders with poor credit scores wouldn’t be the only ones facing adverse outcomes from a 10% cap on card rates. 

The ABA says that between 74% and 85% of open U.S. credit card accounts will either close or see reduced credit lines if issuers cap interest rates at 10%.

According to Equifax, many credit score ranges indicate that poor credit scores are those that come in under 580. But the report from the American Bankers Association reveals that between 71% and 84% of people with a VantageScore credit score that exceeds 600 will lose access to credit if the proposed cap moves forward.

Rob Nichols, President and CEO of the ABA, said the data from the association clearly shows that interest rate caps lead to fewer options and higher costs for cardholders.

“We urge the administration and Congress to carefully consider the significant harm a rate cap would have on U.S. households and the broader economy,” Nichols said, according to CUToday. “This is not the solution to the affordability challenge.”

Lawmakers haven’t passed any new legislation to limit credit card interest rates since Trump’s social media post on the matter. But that likely hasn’t stopped credit card issuers from attempting to figure out how a 10% cap would affect the benefits they offer with their card programs.

The report from the American Bankers Association suggests that even cardholders who have excellent credit scores and those who pay their balances in full each month will likely see fewer benefits and rewards if the 10% cap becomes a reality.

Fergus Hodgson, Director of Econ Americas, a financial advisory and research firm, told us that many of the value-added components of credit card programs would go away if issuers had to comply with a 10% cap.

“There would be a real consolidation in the industry toward just identifying the people who are creditworthy and giving them the bare bones of what is justified by the 10% rate,” Hodgson told us. 

A 10% cap could lead issuers to increase late payment and annual card fees.

While every credit card issuer may have to comply with a cap on credit card interest rates in the future, a cap wouldn’t necessarily affect each issuer the same way. 

Removing all or some of the perks that rewards programs offer may allow certain issuers to recoup a portion of the money they would lose under a 10% cap. But other issuers may have to turn to more severe measures to make up lost revenue.

“If issuers, especially smaller issuers, have to make up that difference, it probably comes in the form of fees,” Brian Scott, Co-Founder and Chief Growth Officer at RAI Partners, told us.

Among the charges card companies could elect to increase following a 10% cap on interest rates are annual fees to access a card and late payment fees, Scott added.