As has been reported, Trump has called on Congress to pass a bill to place a cap on credit card interest rates at 10% for a period of 1 year. If passed, violators (banks that don’t comply) will forfeit all interest they have charged/collected on the debt and are enforceable by the Consumer Financial Protection Bureau and the Federal Trade Commission.
Jamie Dimon, CEO of JPMorgan, has criticized Trump’s plan as being disastrous for the US economy. Mainly the results of such a law would significantly reduce the availability of credit via cards to families that need it…as much as an 80% reduction of credit available to US consumers. And such a reduction would cascade down to retailers, restaurants, hotels etc. driving a further blow to the US economy.
Dimon suggested that it be tested on a limited basis in Vermont and Massachusetts, and see what happens.
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I tend to agree with Dimon, that while a cap on interest rates sounds good for consumers, the unintended consequences would be far worse than the status quo.
Its never going to get anywhere in congress, its a politicalploy at best. To much slush money at stake on both sides. But Trump will scream that the Dems killed his beautiful idea!
The same way that he complained that they won’t do anything to secure the border, when the Democrats tried to pass legislation under Biden to add funding to border security, and they refused to cooperate because Trump told them not to, and didn’t want Democrats to have the win. It’s just what they do.
I thought Republicans were supposed to be all about free markets. Credit card interest rates are determined by the free market. They reflect the fact that the most credit-worthy cardholders don’t pay any interest at all, and it’s the riskier ones that pay the fees.
I agree that this is political grandstanding that will go nowhere, and Trump will take the opportunity to blame the Democrats. Unless, due to increasing dementia, he just forgets the whole thing by tomorrow.
The most likely problem is folks with poor credit cannot get a card, and have to resort in even worse options like payday loans which have sometimes triple digit effective interest rates.
I have no strong opinion on the specifics, but if it’s going to be “economically disastrous” to stop consumers from running up high-interest personal debt, I think that’s a pretty big indictment of our whole economic system.
Simple measure would be to mandate that banks issue credit cards as freely as if the higher interest rates still apply and prohibit them from passing costs on to customers, employees, or the economy, or any other negative effects. At a certain point, you got to call these big corporations out on their “If the government does ABC, we’ll retaliate by doing XYZ” game.
Yes, let’s let the government force businesses to continue operating in markets when the government then changes the rules!!! While we’re at it, let’s have the government force @Velocity to do whatever Trump’s bidding is! The logic here is brilliant!
Credit isn’t an inalienable right. And not everyone runs up personal debt. Some people need stop gap credit. If you cap the interest rate a lender can charge, the availability of credit will tighten. Apparently pay-day loans, high interest credit cards have some demand, as they are frequently used. Many people are bad credit…a fact. And interest rates are how you price risk. I’m not sure it’s and indictment on our economic system, or that some people abuse credit, and the market has a way of pricing that risk in.
10% is probably too low, but I would be interested in trying a max rate a couple points below the highest rates commonly being charged, say hypothetically 20%. Will some people actually become unable to get credit, or are the banks making so much profit off these cards now that it will still be worth their while to issue the cards even if their return is lower?
If you had $50,000 you were looking to invest, and someone offered you 10% to lend it (in portions) to three different people, unsecured, who have credit scores between 550 and 700, would you do it?
I would not. No way. One (not nec. individual investors) can get 4% in 10 year treasuries, 6% on mortgages backed by an appreciating asset, 7% on auto loans backed by a depreciating asset, 8-11% on corporate high yields (junk) which actually have a pretty good repayment rate. And FWIW, I hold a significant amount of may savings in corporate high yield.
Agree that 30% ought to be illegal. But 10% just wouldn’t be worth the risk.
Which is why CC rates are generally double that. The number of defaults on CC debt requires banks to write off a tremendous amount of money owed to them. To make up for those losses, they charge high interest rates.