Trump is Proposing a 10% Cap on Credit Card Interest Rates

Written By: Jose Rodriguez
Edited By: Kellee Rodriguez
October 09, 2024 / GotCredit.com

 Former President Donald Trump recently made headlines during a campaign rally in New York on September 18, 2024, by addressing a pressing issue for millions of Americans: credit card debt. Trump proposed a temporary cap on credit card interest rates, setting the limit at 10%. This announcement comes at a time when the average credit card interest rate sits at 21.51%, according to the Federal Reserve, making it a topic of heated debate.

Understanding Trump's Proposal

In his speech, Trump emphasized the need to alleviate the burden of high interest rates, stating, "We can’t let them make 25 and 30%." While this proposal may sound like a financial relief to many Americans, the implementation details remain unclear, and critics have already expressed concerns.

Credit card debt continues to grow, with the Federal Reserve Bank of New York reporting a $27 billion increase in the second quarter of 2024, bringing the total outstanding balance to a staggering $1.14 trillion. This makes credit card debt a major issue for many households, and Trump's proposal seeks to address that.

However, the American Bankers Association (ABA) and financial experts have raised concerns about capping interest rates. Many argue that a cap could reduce access to credit, especially for lower-income consumers. The fear is that a cap might lead banks to limit the availability of credit cards only to those with high credit scores and income, leaving financially vulnerable individuals without viable credit options.

The Potential Impact of Price Controls

Critics such as Peter Schiff, chief economist at Euro Pacific Asset Management, warn that imposing such a cap could have severe consequences for the industry. Schiff referred to it as "price control" and believes it would "destroy the entire industry" by forcing banks to deny credit to riskier borrowers. Without access to traditional credit cards, consumers may be forced to turn to less-regulated alternatives like payday loans or loan sharks, which often charge far higher rates.

The ABA echoed these sentiments, pointing out that similar proposals, such as one from Bernie Sanders and Alexandria Ocasio-Cortez in 2019, were also met with concern. While intended to help, interest rate caps could unintentionally push consumers towards high-risk alternatives, worsening their financial situation.

What Jose Rodriguez Thinks:

As someone who has spent years helping people improve their credit, I understand both the appeal and the risks of a credit card interest rate cap. On one hand, a cap could provide relief for many consumers drowning in debt, especially when credit card interest rates are hitting record highs. However, the concern about restricting access to credit for those who need it the most is real. Lower-income Americans, who may already struggle to secure credit, could find themselves completely shut out of the system if banks tighten their lending standards.

In my experience, it’s not just about interest rates—it's about overall credit management. A cap on interest rates can help, but it’s only one part of the puzzle. Consumers need to focus on improving their credit scores, reducing their debt-to-income ratio, and managing their finances wisely to secure better terms.

3 Key Takeaways for Consumers:

1. Monitor Your Credit: The best way to reduce interest rates is by improving your credit score. Paying down debt and making timely payments can lead to better offers from lenders.
2. Be Cautious with Alternatives: If credit becomes harder to access, avoid turning to payday loans or other high-risk options that can trap you in a cycle of debt.
3. Advocate for Financial Education: Long-term solutions involve improving financial literacy. Understand your credit and how to manage it effectively to avoid falling into high-interest debt.

Conclusion:

Credit card debt is a serious issue, but solutions like Trump's proposal need to be considered carefully. As always, taking charge of your own financial situation is the best way to protect yourself, regardless of what happens with policies.

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Source: Yahoo! Finance