Opinion: Trump’s 10% Credit Card Rate Cap Could Backfire

Ask any consumer what they think about a 10% cap on credit card interest rates, and the idea might seem pretty attractive at first blush. Slashing rates to around half of the current average: What’s not to like?

Well, as the saying goes: Be careful what you wish for.

President Trump recently floated such a demand, with a proposed start date of Jan. 20 and a suggested duration of a year. Anyone ignoring this request would be in violation of the law, he said. (There is no such law.)

The core issue here is that such rates are essentially the lubricant of the entire financial system, they keep everything flowing. If you start tinkering with that lifeblood and imposing artificial controls, don’t be surprised if you get some unintended consequences.

Financial institutions are compensated for taking certain risks around the creditworthiness of borrowers. If you remove those rewards, they are likely to respond by reducing their exposure. After all, financial institutions are not charities; they’re out to minimize risk and maximize returns for shareholders.

That means slashing limits, or cancelling credit altogether, for millions of borrowers — particularly those whose credit scores land on the lower end of the spectrum. As the trade group Electronic Payments Coalition has pointed out, almost every account with a credit score below 740 (in other words, most of us) would likely be shuttered or restricted as a result.

People with low credit scores may lose access to credit if a cap on card interest rates moves forward.

Chip away at credit access for millions, especially in these turbulent economic times when layoffs have spiked, and then what? Good intentions can go awry, very quickly.

For one, more vulnerable borrowers will have to turn to other sources such as payday lenders, where interest would be higher by orders of magnitude than what they were paying before. So by addressing one problem, you’ve created a worse one.

It also means banks will make up for revenue shortfalls in other ways. Think higher annual fees, or trimmed rewards plans, or additional account charges, which would all actively harm the affordability crisis lawmakers are trying to address.

Not to mention that the president doesn’t have the power to change the entire interest-rate landscape with a stroke of a pen — no more than he has the right to determine rate policy at the Federal Reserve (another bone of contention, given the recent attacks on Chairman Powell).

Of course, in office Trump has done other things he didn’t have the explicit authority to do, which is why the markets seem to be taking this possibility seriously. After the announcement, financial stocks, including Synchrony and American Express, saw share prices plummet in response.

In normal times, such a massive policy change would require the traditional sequence of legislative action. The current Congress, however, is historically inactive and doesn’t seem to want to take the steering wheel on much of anything.

Not to mention that the idea of rate controls doesn’t seem to be Republican in nature. As a thought exercise, what would the nation think if a Democratic president had intervened in free markets to come up with a rate cap out of thin air? 

Some financial stocks dropped following Trump’s announcement about a cap on card interest rates.

They would have no doubt have been accused of socialism and governmental overreach. If we’re being philosophically consistent, then that’s what this proposal stands for as well.

What this episode really shows is that questions of affordability seem to be hitting home. The instinct to do something about consumer debt loads isn’t a bad one: According to the Vanderbilt Policy Accelerator, a 10% rate cap would save consumers on the order of $100 billion, which is no small change.

And we shouldn’t take the nihilistic position that nothing can ever be done about rates. But solutions need to be thoughtful, and weighed by lawmakers, not notions thrown around carelessly that roil real money in the markets. 

This kind of heavy-handed intervention isn’t the way to go about it. If you truly wanted to lighten consumer debt, then you could talk about measures of forgiveness, as occurred under President Biden. But so far, that isn’t an idea the administration has wanted to entertain.

Of course, floating an idea is very different from actual implementation. In recent years, for instance, we have been told many times that new health care plans will be coming in a matter of weeks, and it never comes to pass.

Or consider the DOGE dividend or tariff rebate checks, ideas which were tossed around but don’t seem any closer to reality. Seen in that light, this proposal could be meant as more of a distraction than anything else.

Just like with Fed rates, you don’t want critical levers of an economy to be subject to the whims of one man. Take away that independence, and you may not like the results.

That’s likely where this sudden rate cap proposal will end up, in a graveyard of half-baked ideas that ultimately didn’t go anywhere. That’s probably where it needs to stay.