Rising Credit Card Debt Sparks Proposal for Interest Rate Cap
Increasing credit card debt burdens millions of Americans, prompting U.S. President Donald Trump to propose a cap on interest rates at 10%. This comes as individuals like Selena Cooper, who recently lost her job, grapple with significant debt.
Why It Matters
As credit card interest rates rise above 22%, many consumers are feeling the financial strain. The proposed interest rate cap seeks to alleviate some of this pressure, but it raises questions about its feasibility and potential backlash from the banking sector.
Key Developments
- Donald Trump proposed capping credit card interest rates at 10% starting January 20, 2024.
- Critics, including bank executives, argue that the cap could restrict consumer access to credit.
- Current average credit card debt in the U.S. exceeds $1 trillion, with 37% of adults carrying a balance.
- Some financial experts warn that a cap may not benefit those already in debt as banks might respond by raising other fees or cutting lending.
Full Report
A Personal Struggle
Selena Cooper, a 26-year-old former paralegal from Columbia, South Carolina, has seen her credit card debt rise to $6,000 after losing her job due to a government shutdown. She first incurred late payments in October, leading to increased interest rates on her cards, with Capital One raising their rate from 8% to 16% and American Express doubling from 10% to 18%. “This will help a little bit,” she stated regarding Trump’s proposal, “but it’s still not going to get me out of debt.” Currently, she is diversifying her income through a photography business, but it is insufficient for her mounting financial obligations.
Wider Implications
The average credit card interest rate in the U.S. has climbed significantly over the last decade, with Federal Reserve data showing it peaked at about 22% in November. Approximately 37% of U.S. adults hold credit card balances. Economists are warning that if credit card companies’ revenues are threatened, they may limit lending, further impacting consumers who rely on these funds.
Bank Reactions
The proposal has drawn criticism from major banks, who argue it could limit credit accessibility for those who need it most. JP Morgan’s Chief Financial Officer Jeremy Barnum cautioned that a cap could lead to a widespread loss of credit availability. Citigroup’s CEO Jane Fraser echoed similar sentiments, noting it could severely impact consumer spending.
Some analysts, including Susan Schmidt from Exchange Capital Resources, voiced skepticism about whether the proposed cap would genuinely help those already struggling with debt. They argue that financial institutions might respond by limiting credit access to higher-risk borrowers or increasing annual fees.
Nevertheless, research from Vanderbilt University suggests a 10% cap could save Americans approximately $100 billion annually in interest payments, a substantial benefit for households contending with high living costs.
Consumer Perspectives
Morgan, a 31-year-old consumer struggling with $6,700 in credit card debt, expressed cautious optimism about Trump’s proposal. She described the emotional toll of her financial situation but noted that capping rates could provide much-needed relief if it comes to fruition.
Context & Previous Events
The idea to cap credit card interest rates is not new and has seen bipartisan support in Congress. Last year, Senators Josh Hawley and Bernie Sanders introduced a bill aiming to limit rates to 10%. Despite some support for the idea, House Speaker Mike Johnson remains skeptical, citing potential negative consequences for lending. With banks poised to lobby against such measures, the future of the proposal remains uncertain.
