Trump, AOC and Bernie: Limiting credit card interest brings together conservatives and progressives while banks raise concerns

Debate Intensifies Over Proposed Credit Card Interest Rate Cap

Efforts to limit credit card interest rates, which have been ongoing for decades, recently gained momentum after former President Donald Trump voiced support for a temporary 10% cap. This proposal has sparked both bipartisan interest among lawmakers and strong opposition from the banking sector.

On Friday, Trump announced his intention to impose a one-year 10% ceiling on credit card interest rates. Lawmakers from both major parties have previously introduced similar measures, and some have expressed support for Trump’s plan.

Consumer advocates have long called for restrictions on credit card rates, but banks maintain that such limits would reduce access to credit, particularly for those who rely on it most. This argument has been reiterated by financial leaders in recent days.

“A broad cap would significantly restrict credit availability, especially for those most in need,” said Jeremy Barnum, CFO of JPMorgan Chase, during a recent earnings call. Executives from Citi and Bank of America have echoed these concerns.

According to Federal Reserve data, credit card interest rates have surged since 2022, reaching record highs in the summer of 2024. As of January 7, the average rate stood at 19.65%, based on Bankrate’s national averages.

Alongside rising rates, Americans’ credit card debt has also climbed. By the third quarter, total balances reached $1.23 trillion, according to Federal Reserve data released in November.

Uncertainty Surrounds Implementation

Details about how Trump’s proposed cap would be enacted remain unclear. In a Truth Social post, he stated, “We will no longer allow Americans to be taken advantage of by credit card companies charging 20 to 30% interest.” He suggested the cap would begin January 20, but did not specify the process for making it law.

The Consumer Financial Protection Bureau (CFPB), which oversees federal regulations for credit cards, would likely play a central role in any implementation efforts.

Legislative Efforts and Political Support

• Senators Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) introduced legislation in February to cap rates at 10% through 2031.
• Representatives Alexandria Ocasio-Cortez (D-N.Y.) and Anna Paulina Luna (R-Fla.) proposed a similar bill in the House last year.

Following Trump’s announcement, Senator Hawley renewed his call for Congress to pass the bill, stating, “President Trump is right: working Americans are drowning in record credit card debt while major issuers profit from soaring rates.”

Senator Elizabeth Warren (D-Mass.), a longtime advocate for consumer protections, reportedly told Trump during a phone call that Congress could pass the cap “if he will actually fight for it,” according to a statement on X.

Potential Impact on Consumers and Lenders

With Americans juggling various debts—including mortgages, student loans, and credit cards—the proposed cap comes at a critical time. Ted Rossman, a senior industry analyst at Bankrate, noted that the cap would likely not affect existing credit card balances, as retroactive application would be legally complex. However, he said future borrowers could see significant savings, with a Vanderbilt Policy Accelerator report estimating annual savings could reach $100 billion.

While consumers could benefit, lenders would likely see profits decline and may alter their business strategies. Rossman predicted that access to credit could be reduced, especially for those with lower incomes or weaker credit histories.

“We’re committed to affordability,” said Bank of America CEO Brian Moynihan during an earnings call. “But a cap could have unintended consequences, including tighter credit standards.”

Industry Response and Alternatives

Some credit card providers are already adjusting. Bilt, a rewards program for renters, introduced three new cards with a 10% interest rate for one year, aligning with the proposed cap.

Traditional lenders may lose market share to alternative credit options if a cap is enacted. The American Bankers Association and other industry groups warned in a joint statement that consumers could turn to less regulated, more expensive alternatives.

One such alternative is buy now, pay later (BNPL) services, which allow consumers to make purchases with short-term, interest-free loans repaid over time. While these typically do not charge interest, late fees are common. Rossman suggested that BNPL could see rapid growth if it becomes the preferred option for those seeking credit.

Although BNPL is less regulated than traditional credit cards, the CFPB clarified in May 2024 that BNPL providers are considered credit card issuers and must offer similar consumer protections, according to a CFPB statement. It remains uncertain whether a credit card rate cap would also apply to BNPL products.

Market Effects and Outlook

Rossman noted that banks with more diversified operations may weather a rate cap better than those heavily dependent on credit card revenue. The financial markets have already responded to the news—Capital One’s stock, for example, fell following Trump’s announcement.

This story was first published by NBCNews.com.