President Donald Trump has proposed a stunning change to Americans’ finances, calling for “a one year cap on Credit Card Interest Rates of 10%” on social media platform Truth Social last Friday, before doubling down on the plan while speaking to reporters on Air Force One Sunday.
While there’s no telling how an interest-rate cap would work – and if it’s even possible – a 10 percent rate would have a significant impact on the amount of interest a consumer would pay over the course of a year.
The president’s rattled the stock market Monday, with some bank and card issuer stocks falling anywhere from 3 percent to 10 percent in pre-market trading, according to The Wall Street Journal.
Super savings
The average credit card interest rate is 22.30 percent for those that accrue interest (some cards don’t charge interest for a certain period of time as part of a promotion for new customers), according to the latest figures from the Federal Reserve’s consumer credit data.
Consumers carry an average credit card balance of $7,886, according to the most recent data from LendingTree.
LendingTree also estimates that 54 percent of Americans carried a credit card balance in the past year, which means a 10 percent rate cap would directly impact about half of the adult population.
Here’s how much you could save on interest payments over a year, using the average credit card interest rate and proposed 10 percent rate cap. The figures below assume a monthly payment of 3 percent of your starting balance, which is a common rate for a minimum monthly payment, according to Experian:
|
Balance |
Interest paid in one year at 22.30% |
Interest paid in one year at 10% |
Money saved with 10% interest rate |
|---|---|---|---|
|
$2,500 |
$520.24 |
$219.38 |
$300.86 |
|
$5,000 |
$1,040.47 |
$438.74 |
$601.73 |
|
$7,500 |
$1,560.69 |
$658.11 |
$902.58 |
|
$10,000 |
$2,080.62 |
$877.45 |
$1,203.17 |
|
$12,500 |
$2,601.15 |
$1,097.13 |
$1,504.02 |
|
$15,000 |
$3,121.39 |
$1,316.2 |
$1,805.19 |
A one-year, 10 percent cap on interest would mean significant savings for consumers with bigger balances. Those with at least $10,000 in credit card debt would save more than $1,000 a year in interest payments, while cardholders with balances of $2,500 to $7,500 could save anywhere from around $300 to around $900, respectively.
Banking industry says “nope”
If the president were to require a 10 percent rate cap on credit cards, it will likely not go over well with banks and card issuers that will almost certainly push back against any such edict. Five industry organizations, including the American Bankers Association, issued a statement following Trump’s mention of an interest rate cap.
“We share the President’s goal of helping Americans access more affordable credit,” the statement said. “At the same time, evidence shows that a 10% interest rate cap would reduce credit availability and be devastating for millions of American families and small businesses who rely on and value their credit cards, the very consumers this proposal intends to help. If enacted, this cap would only drive consumers toward less regulated, more costly alternatives. We look forward to working with the administration to ensure Americans have access to the credit they need.”