As the US grapples with soaring credit card debt, President Donald Trump has proposed capping interest rates at 10% for one year – a move that has sparked fierce debate within the financial industry. The proposal, which was part of Trump’s campaign promises, aims to provide relief to millions of Americans struggling with mounting credit card balances.
Selena Cooper, a 26-year-old former paralegal, is one of those facing the strain of credit card debt. After losing her job a few months ago due to the government shutdown, Cooper’s debt across her three credit cards has accumulated to £6,000. She has seen her interest rates double, with Capital One raising hers to 16% and American Express jumping to 18%.
Trump’s plan to limit credit card costs has drawn a swift backlash from bank executives, who argue that a cap would erode consumers’ access to credit. Banks claim that interest charges are a significant source of revenue, amounting to £160 billion in 2024 according to the Consumer Financial Protection Bureau. JP Morgan’s chief financial officer, Jeremy Barnum, warned that a rate cap would result in people “losing access to credit on a very, very extensive and broad basis, especially the people who need it the most.”
However, some analysts and economists believe a cap alone may not benefit consumers as much as Trump and lawmakers claim. Benedict Guttman-Kenney, an assistant professor of finance at Rice University, suggests that banks might respond by limiting lending to people with lower credit scores, who are considered higher-risk borrowers. Banks could also try to recoup their revenue elsewhere, such as by raising annual or late fees.
Nonetheless, a recent Vanderbilt University study found that Americans would save roughly £100 billion a year in interest costs if a 10% rate cap were implemented. Researcher Brian Shearer argues that the savings from reduced interest would far exceed any lost rewards for consumers, even if banks had to trim those offerings.
The proposal to cap credit card rates has garnered bipartisan support, with Republican Senator Josh Hawley and Democratic Senator Bernie Sanders introducing a bill last year to limit rates to 10%. However, House Speaker Mike Johnson has expressed concerns about the “negative secondary effects” and a potential pullback in lending.
As the debate continues, Americans like Morgan, a 31-year-old struggling with £6,700 in credit card debt, are hopeful that the Trump administration’s proposal could provide some relief. “It’s one of the few things he’s done that prioritises people over businesses,” she said.
The fate of the credit card rate cap proposal remains uncertain, with banks poised to continue lobbying against it. The outcome will have significant implications for millions of Americans grappling with the burden of credit card debt.