Trump’s Proposal May Cause Shift Toward Voluntary Rate Caps

President Donald Trump’s call for a 10% cap on credit card interest rates may not require legislators to pass any new laws for the rate limit to impact cardholders.

“Our expectation is that it won’t necessarily require legislation because there will be really great new Trump cards presented for folks that are voluntarily provided by the banks,” Kevin Hassett, Director of the National Economic Council of the U.S., said recently, according to American Banker.

That quote may have caught many credit card issuers off guard. Some issuers likely have been hoping politicians would provide more details about how a 10% cap would work, but Hassett’s comments seem to signal that the White House believes the ball is in the court of the credit card companies.

But the fact of the matter may be that the proverbial ball isn’t clearly in anyone’s court when it comes to a cap on card interest rates. Uncertainty over who’s responsible for the next move regarding the cap may lead to a stalemate that doesn’t produce any further action on the issue.

Credit card companies aren’t likely eager to implement a cap that eats away a significant chunk of their revenue if they don’t have to.

“What it means for most card issuers is that probably more than half of their income would get cut from this,” Brian Scott, Co-Founder and Chief Growth Officer at RAI Partners, told us. “If you cut to 10%, that essentially means that almost every card is break-even or underwater. So, it’s a pretty significant impact.”

Though many credit card issuers may balk at implementing a rate cap that will substantially erode their income, others in the payment ecosystem have introduced plans to align with Trump’s proposal. 

For example, financial technology company Bilt has rolled out credit cards that comply with Trump’s interest rate cap. Bilt’s new credit card products each come with a 10% introductory APR on eligible purchases that lasts for 12 months. 

Only time will tell if many other companies will introduce similar products in the near future that meet Trump’s proposed cap. If companies don’t move to voluntarily offer credit cards with interest rates that don’t extend beyond 10%, then those products may not hit the market at all.

The 10% cap that President Trump has called for is well below the average credit card interest rate of 23%.

Fergus Hodgson, Director of financial advisory and research firm Econ Americas, told us that the likelihood of the credit card interest rate cap proposal leading to a law on the issue is extremely low.

“People don’t seem to realize that the financial system is such a large entity of so many different interlocking parts that making such a massive change so quickly seems almost impossible,” Hodgson told us. “The logistics of implementing such a thing and getting the votes in Congress seem very difficult.”

The average credit card interest rate hovers around 23%, according to a recent report in The Wall Street Journal. Even if Trump’s call to implement a cap at 10% does gain traction with lawmakers this year, a considerable amount of time may pass before we see any laws regarding it.

“The legislative process takes a long time,” Scott told us. “By the time this goes through Congress, there’s likely to be some sort of legal challenge to it, too. And those legal challenges can drag on for years as well.”