US banks concerned over Trump call to slash credit card rates
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US President Donald Trump is calling for a 10 per cent cap on credit card interest rates.
PHOTO: DOUG MILLS/NYTIMES
- Trump plans a 10% cap on credit card interest rates from Jan 20, to stop companies "ripping off" the public with high rates.
- Banking associations warn a 10% cap would reduce credit availability, hurting families/businesses and driving people to riskier options.
- Senator Warren doubts Trump's sincerity, noting his past attempts to shut down the Consumer Financial Protection Bureau (CFPB).
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WASHINGTON - The US banking industry is warning that President Donald Trump’s plans to lower credit card costs would make credit less available and hurt consumers and businesses.
Mr Trump said on Jan 9 that effective Jan 20, the first anniversary of his administration, he was calling for a 10 per cent cap on credit card interest rates.
“We will no longer let the American Public be ‘ripped off’ by Credit Card Companies that are charging Interest Rates of 20 to 30%,” he said on Truth Social.
Five associations representing US banks responded that they shared the President’s goal of helping Americans access “more affordable credit”.
“At the same time, evidence shows that a 10 per cent interest rate cap would reduce credit availability and be devastating for millions of American families and small-business owners who rely on and value their credit cards,” the associations said in a joint statement late on Jan 9. “If enacted, this cap would only drive consumers towards less regulated, more costly alternatives.”
The statement was issued by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America.
Credit cards are the primary source of consumer credit in the US. Costs and outstanding balances have soared in recent years as people increasingly rely on them to maintain spending, even for basic necessities.
According to data from the Federal Reserve, the total outstanding credit card debt exceeded US$1.23 trillion (S$1.6 trillion) at the end of September – the fourth-largest source of household debt, after mortgages, student loans and car loans.
Interest rates on credit cards are at least 21 per cent and can reach as high as 38 per cent for borrowers with a higher risk profile, according to the Fed. This is up from an average of around 12 per cent a decade ago.
With midterm elections due in November, Mr Trump is under pressure to reduce the cost of living as promised during his 2024 election campaign amid stubborn inflation and consumers’ complaints that they struggle to make ends meet.
Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, voiced scepticism that Mr Trump was serious about capping rates, noting that he has sought to shutter the Consumer Financial Protection Bureau, a consumer watchdog.
“Begging credit card companies to play nice is a joke,” Ms Warren said in a statement on Jan 9. “Trump doesn’t care about affordability.” AFP
