Meanwhile, former President Donald Trump just proposed making credit card interest rates no higher than 10 percent for one year. He’s asking Congress to act and pass a law that would make this cap enforceable. The proposal comes at a time of increasing consumer debt and economic pressure for many in the American public. Change Through Investment Trump has received a lot of attention for this concept. So far, almost two months later, he hasn’t released a detailed plan for how to put such a cap in place.
Senator Bernie Sanders has introduced a competing bill — the Veterans Credit Improvement Act — that would go even further, capping interest rates at 10 percent. His legislation provides a much more permanent solution, with the cap not expiring until 2031. Yet, Sanders’ bill has languished in Congress ever since, facing backlash from many different angles. In a recent interview with CNBC, Senator Elizabeth Warren came out in enthusiastic support of the idea. After some back and forth, she excitedly proclaimed, “Awesome, let’s get some action going!” This suggests a promising bipartisan willingness to work together on the crucial issue of soaring high-interest credit card debt.
Trump’s Proposal and Its Implications
Trump’s new plan would help ease the strain for American consumers suffering from credit card debt. He argued that high-interest rates have turned saving for down payments on homes into a major challenge. “One of the biggest barriers to saving for a down payment has been surging credit card debt,” Trump noted during a recent speech.
To critics, the proposal falls short on specifics. Trump’s call for a new legislative action raises doubts on how a hard cap like that would be accomplished. Brian Jacobsen, a labor economist, sounded doubts about the proposal’s chances of success in Congress. This is a good thing, because for the first time, the president is asking Congress to pass specific legislation, so he’s not going to personally set individual credit rates. That puts a serious damper on the chances that we’ll see a 10 percent cap enacted any time soon,” Jacobsen said.
Further, fiscal policy experts are raising alarm over anticipated harmful effects resulting from the cap. What Jamie Dimon, the CEO of JPMorgan Chase, recently told CNBC. He is concerned that moving forward with this measure would reduce credit availability to millions of Americans. He stated, “It would remove credit from 80 percent of Americans, and that is their back-up credit.” That introduces some deeply troubling questions about what people would really benefit from this proposal.
Congressional Response and Legislative Stagnation
And while Trump demands urgent action from Congress, Sanders’ bill is stuck in purgatory. Beyond the dangers inherent in surface transportation stagnation, the stagnation itself raises serious questions about lawmakers’ competence to tackle other pressing economic challenges. Senator Elizabeth Warren is on-board with the proposal. It would be a major bipartisan achievement to address the growing burdens of high-cost credit card debt.
House Speaker Mike Johnson was quick to note that the proposal would risk “dangerous, negative secondary effects.” That’s a clear sign that some lawmakers are concerned about the unintended consequences of capping interest rates.
Most recently, Julie Margetta Morgan called out the lack of certainty in Trump’s commitment to his proposal. She stated, “President Trump is generating a lot of headlines from his credit card interest rate idea, but we’re still waiting for him to generate savings for real people.” This sentiment moralizes the doubts about Trump’s ability to continue to do what he promises.
Market Reactions and Industry Concerns
Response reactions to Trump’s proposal, especially on Wall Street have been mixed. Credit card companies and banks fell predominately in their stock performance following the announcement. This variance is indicative of the uncertainty surrounding the proposal’s impact on the financial industry.
Dimon recommended that instead of rolling out a nationwide cap all at once the federal government test the idea first in select states. He remarked, “I think we should test it. The government can do it; they should force all the banks to do it in two states, Vermont and Massachusetts [where Sanders and Warren represent], and see what happens.” This approach would go a long way to improving understanding of what a measure like this would mean for consumers and businesses at the same time.
As this debate plays out, one thing is certain: Experts will be studying the impact of a possible interest rate cap for years to come. A recent report from Vanderbilt University estimates that eliminating such a cap would save borrowers at least $100 billion per year. However, questions remain around how this would impact overall credit access and the broader economy.
