Four out of five credit card accounts might disappear if Trump's interest rate cap is implemented, according to experts

Credit Card Interest Rates: Trump's Proposed Cap and Its Potential Impact

Currently, Americans are facing an average credit card annual percentage rate (APR) of 21%, which is nearly twice as high as it was ten years ago.

Main Points

• Former President Trump has proposed a policy that would limit credit card interest rates to a maximum of 10% APR, effective January 20. This is significantly lower than the current average rate.
• Industry experts warn that such a cap could lead to many Americans losing access to credit cards, though some believe these concerns are exaggerated.

Trump’s suggestion to restrict credit card interest rates has been welcomed by those burdened by high rates. However, industry analysis indicates that implementing this cap could result in up to 80% of credit card accounts being closed, potentially harming the very consumers the policy aims to assist.

Consumer advocates acknowledge the widespread frustration over high interest rates. However, banks and credit unions caution that a strict cap could cause lenders to withdraw from offering cards to anyone without excellent credit, reducing options for millions. Additionally, many cardholders could lose access to rewards programs as banks adjust to decreased interest income.

Trump announced his proposal would take effect on January 20, stating, "We will no longer allow the American public to be taken advantage of by credit card companies charging 20 to 30% interest rates."

Below, we explore the chances of this proposal becoming law and its potential effects on Americans’ finances.

Challenges Facing the Proposed Cap

With credit card APRs averaging 21% and total card debt reaching a record $1.23 trillion, the idea of capping rates has gained some bipartisan support. Senators Bernie Sanders and Josh Hawley have introduced similar legislation.

Adam Rust, director of financial services at the Consumer Federation of America, noted that affordability is a concern shared by leaders across the political spectrum.

Note

The rise in average credit card rates is not solely due to higher Federal Reserve rates. In 2024, the margin banks charge above the prime rate reached a record 16.4%, compared to an average of 10% in the decade after the 2008 financial crisis, according to the Consumer Financial Protection Board.

However, Trump may lack the legal authority to enforce such a cap, and lenders argue that offering cards at a 10% APR on a large scale is not financially viable.

Legal Considerations

Interest rate limits are determined by individual states. A 1978 Supreme Court ruling allows nationally chartered banks to apply their home state’s rates nationwide, regardless of where customers live.

Legislative Hurdles

There is currently no federal limit on credit card interest rates. According to the Congressional Research Service, establishing a national cap like the one Trump proposes would require Congressional approval.

Senator Hawley has called Trump’s idea "fantastic" but emphasized that Congress should pass his bipartisan bill to provide immediate relief. Experts agree that the legislative process would be lengthy and likely face legal challenges, making a January 20 implementation unlikely.

How Would a 10% Cap Affect Credit Card Holders?

Very few cardholders currently enjoy an APR as low as 10%. Even those with top-tier credit scores typically pay rates above 12%.

Research from the Electronic Payments Coalition suggests that over 80% of credit card accounts could be closed under a 10% cap, especially for those with credit scores below 740. Data from VantageScore indicates that about 37% of consumers have scores under 660, placing them in subprime or near-prime categories.

Despite these concerns, Adam Rust points out that banks could still profit from credit card fees, and credit card lending remains highly lucrative compared to other banking activities.

Rust also argues that reducing available credit might not affect as many people as feared, since consumers typically have more unused credit than revolving debt.

He suggests, "There’s room to slightly reduce credit availability without limiting the credit people actually use."

Potential Savings from a 10% APR Cap

For those who would retain their cards, a 10% interest rate could lead to significant savings. For example, a household with the national average credit card debt of $11,019 at a 21% APR would save about $1,100 annually if the rate dropped to 10%.

While Americans could lose $27 billion in rewards such as cash back and travel points, the average borrower would save about $3 in interest for every $1 lost in rewards, according to the Vanderbilt Policy Accelerator.

However, those who stand to benefit the most from lower rates are also the most likely to lose access to credit. Industry projections indicate that most borrowers with credit scores below 740 could see their cards canceled or their credit limits reduced.

Rust notes that any cap would primarily affect those who carry balances month to month—mainly working- and middle-class consumers—while those with higher incomes typically pay off their balances in full.

Vanderbilt analysts estimate that a 10% cap could save consumers $100 billion in interest each year, but it would likely exclude borrowers with scores below 600. A 15% cap, they suggest, might strike a better balance.

Rust concludes, "The rate doesn’t need to be as low as 10% to make a meaningful difference. Even a higher, but still reasonable, cap could provide real benefits for many people."

If banks and credit unions are correct about the consequences, those who lose their cards may have to turn to less favorable alternatives, such as payday loans with rates as high as 400% APR, pawn shops, or unregulated online lenders.