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Be prepared to pay the maximum limit 10% What’s your credit card balance for a year?
If President Donald Trump gets his way, this could become a reality. presidential appeal One year, 10% cap Find out about credit card interest rates on Truth Social last Friday and then double spoke to the press aboard Air Force One on Sunday.
However, capping credit card interest rates for 12 months isn’t as simple as an order bank and issuers lower interest rates. Felix Shipkevich, adjunct professor of law at Hofstra University, said Trump will likely have to convince lawmakers to enact federal legislation because the basis for pushing for a rate cap via executive order is tenuous.
“Yes, but the most direct and durable route is through federal legislation,” Hipkevich told independent Via email. “Congress has clear authority under existing federal consumer financial and banking regulations to regulate credit card pricing.”
Trump tries to enact 10% interest rate cap if Congress hits dead end credit cardShipkevich said he will face a difficult road ahead.
“If the rate cap were to be implemented through administrative action or aggressive regulatory interpretation, I would expect to face immediate legal challenges seeking injunctions and raising statutory authority and administrative law arguments,” Shipkevich said.
Capping credit card interest rates could result in credit card companies taking on projected losses. To combat the problem, Shipkevich said they may find other ways to generate revenue.
“They will turn to revenue sources that are still allowed, such as reductions in annual fees, account fees and rewards programs,” he said. “Issuers will also manage risk by capping balances and limiting credit availability, thereby fully reducing interest risk.”
Brian Riley, director of credit payments at Javelin Strategy & Research, said that in reality, shifting revenue generation away from interest and toward other aspects of credit card ownership ultimately hurts consumers.
Credit card issuers are likely to restrict new credit cards to borrowers with a FICO score of at least 740.
“This will reduce lending but eliminate future lending risk for high-risk borrowers, directly increasing operating income,” Riley said. independent in an email. “Cutting off credit lines to those outside prime credit is harsh, but lenders have a responsibility to their shareholders, especially given the public interest in extending credit.”
How many consumers would be affected if credit card issuers reserved credit cards for those with the best credit? Riley said it’s about 50 percent.
“Lenders cannot be forced to lend,” he said. “If loans become unprofitable, lenders will tighten credit and only serve the least risky and most profitable segments. As it stands, less than half of the U.S. population can be served, other credit products will lose investor confidence, and merchants will pay a heavy price.”
Riley also believes card issuers may shift to charging minimum payments of around 3% to 10%. This would allow the issuer to earn more revenue each month and offset the loss from the interest cap. However, due to higher monthly payments, some borrowers will be at risk of defaulting on their loans (at least 30 days past due).
“Doubling the minimum interest rate due to the 10% increase… will largely mitigate the risk to interest rate spreads,” he said. “However, delinquency rates are expected to surge as households face less available credit and higher payment rates.”