Banks warn consumers will be hurt by Trump's 10% cap on credit card interest rates

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Banks argue cap would limit credit access, harm economy

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Financial groups warn cap could lead to higher fees, reduced rewards

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Trump's proposal lacks details, may need congressional action

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Subprime borrowers face hardest impact from proposed cap

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Morningstar analyst doubts cap implementation, warns of profitability issues

By Hannah Lang and Douglas Gillison

Jan 12 (Reuters) - U.S. banks and financial institutions on Monday pushed back against President Donald Trump's proposed cap on credit card interest rates, citing new data that showed it would ?result in millions of American households and small businesses losing access to credit. Trump, who is under pressure to address voter concerns over the cost of living, on Friday called ?for a one-year cap on credit card interest rates at 10% starting on January 20. He did not provide details on ?how such a ban would be imposed, and some industry experts said it would require congressional ?action.

After being largely blindsided by ?the move, financial groups quickly scrambled to rebut the proposal on Monday. The Electronic Payments Coalition, which represents financial institutions and payment card networks, said that nearly every credit ?card account associated with a credit score below 740 -- 82% to 88% ?of open credit card accounts -- would be closed or severely restricted under a 10% cap.

"A one-size-fits-all government price cap may sound appealing, but it wouldn't help Americans - it would do the exact opposite, harming families, limiting ?opportunity, and weakening our economy," said EPC Executive Chairman Richard Hunt.

While ?subprime borrowers would ?be hardest hit, a cap would lead to higher annual fees for most borrowers and reductions in credit card rewards and more monthly account charges, lenders argued. Some also warned a cap would slow consumer spending and weaken the economy.

Credit ?cards are a cornerstone of U.S. consumer finance, giving households flexible access to credit, but often at hefty rates. For banks and card issuers, those high rates and associated fees are a major source of profit.

According to data from the Consumer Financial Protection Bureau, in 2024, average APRs hit their highest levels since 2015, with most but not all of the increase due to the rising prime rate: 25.2% for general purpose cards at 31.3% for private label cards. The share of cardholders making only the ?minimum payment in 2024 ?was also the highest level since 2015, the data found.

The cap would likely prompt a severe pullback in lending because it would make credit cards unprofitable, industry sources said.

"President Trump's statement was mostly a call to action and did ?not contain any policy or legislative announcements," wrote Morningstar analyst Michael Miller.

"We think a cap is unlikely to be implemented, but if enacted it would have dire consequences for credit card profitability. Many credit card portfolios carry credit costs that are too high to be supported under a 10% limit."

Other research has shown that credit card interest rate caps could save consumers money. A study from Vanderbilt Policy Accelerator, a research center at Vanderbilt University, published in September found that a 10% cap would save Americans $100 billion annually, although such a cap would also result in some reduction ?to credit card rewards for borrowers with credit scores of 760 or lower.

"We often hear these complaints that this would cause banks to close people's credit card accounts. What we found is that the profit margins are absolutely massive," said Brian Shearer, director of competition and regulatory policy at the Vanderbilt Policy Accelerator.

"There really is ?some fat to cut." (Reporting by Hannah Lang in New York and Douglas Gillison; editing by Michelle Price, Lananh Nguyen and Nick Zieminski)