WASHINGTON—Former President Donald Trump made headlines this month by promising a crowd in New York he would place a temporary 10% cap on credit card interest rates if he is elected in November.
While analysts believe the chance is small the cap would be instituted if Trump wins, they addressed how Trump’s plan, if enacted, could impact issuers and cardholders. Experts believe consumers will save on their cards only to pay elsewhere, as the big banks hike many other charges. Issuers, too, will be forced to cut back, largely on rewards.
America’s Credit Unions Chief Advocacy Officer Carrie Hunt said the trade association is always concerned when product lines are controlled by the government.
“There was a lot of discussion last week about President Trump's comments relative to whether or not there should be a cap on credit card interest,” Hunt said. “I will say that, of course, federal credit unions have an interest rate cap. Clearly, credit unions pride themselves on providing provident credit.”
Bigger Picture
Carrie Hunt
But the Trump’s proposed 10% cap is simply part of larger discussion, Hunt noted.
“Anytime you put a price cap in place, no matter what that cap, it creates disturbances in in the market. Any price cap has the potential to prove problematic,” she said. “And we certainly are watching to see whether or not this idea gains any traction and would be something that former President Trump would continue on with, should he win the election in November.”
Hunt said the Trump campaign appears to be pushing a lot of ideas out to see what sticks with voters.
“I think the bigger question is what potentially happens next year relative to some other rate cap ideas that have been proposed in Congress,” she said. “There is the military lending cap. There's been legislation proposed in the past that would potentially extend that to all different types of lending. Again, I think it's a bigger policy question about what do rate caps really do relative to the market.”
Hunt pointed out CFPB Director Rohit Chopra has been a proponent of credit cards.
“Well, how does that dialogue change if there's a rate cap in place? What happens to those consumers who still need that credit?” Hunt said. “Credit unions exist to provide provident credit, but they serve their membership with a whole host of different products and services. Some consumers use their credit cards more than others and will have a revolving line of credit. Some use overdrafts for short-term means—even if there are other options available. What we have seen, time and time again, is that when you try to control different types of product lines it pushes consumers into other areas to meet those needs, as those needs aren't going away.”
Hunt said ACU’s biggest concern is price controls on credit cards could impact issuers’ decisions on who could obtain a credit card and steer some credit union members to payday lenders.
More ‘Realistic’ Reduction
Bill Hardekopf, CEO of Billsaver.com, believes there is little chance the 10% cap would ever be imposed.
“What would be more realistic,” he said, “is mandating high percentage rate cards, 23%-24%, would be dropped five percentage points. Just to give everybody a jumpstart in the economy. But just to cut rates by more than half…If that did take place rewards would be totally cut out. Issuers could not afford to pay any kind of rewards if they’re only getting 10% interest.”
Bill Hardekopf
Credit Standards
Hardekopf also believes credit standards would be greatly tightened.
“I think those things would definitely happen,” he said. “These banks are large corporations that report to stockholders. Any kind of move in one area that affects their revenue, they're going to make it up in some other way. You would see increases in other fees.”
Hardekopf contended that ultimately consumers might even lose with a 10% rate cap.
“The tightening of credit standards, the elimination of rewards, more charges in other areas….” he noted.