Trump wants to cap credit card interest rates at 10%. But such limits could harm consumers, experts warn | Fortune

"But for many consumers, they can also be a debt trap with no escape. Like Robin Hood in reverse, credit card companies take the interest payments from those who carry a balance and redistribute them as rewards that benefit people who don't. Sky-high annual percentage rates (APRs) on U.S. credit cards are worsening the debt trap for those who carry a balance. Four years ago, the average APR was less than 15%. By 2024, it was over 21%, and a growing number of Americans are finding themselves with interest rates over 30%."

"On Friday, President Donald Trump called for a one-year cap on credit card interest rates at 10%, effective Jan. 20. That comes after Sens. Bernie Sanders (I-VT) and Josh Hawley (R-MO) introduced a bill last year that would cap credit card interest rates at 10% for five years. On the campaign trail, Trump supported the idea-despite stark opposition from the banks and credit unions that issue credit cards. "When large financial institutions charge over 25 percent interest on credit cards, they are not engaged in the business of making credit available. They are engaged in extortion and loan sharking," stated Sanders in a press release."

"The bill aims to curb the profits that flow from credit card lending and provide financial relief for working families. However, if passed the measure would likely reduce easy access to credit and also undercut the credit card rewards that power the industry. Whenever the Congress imposes new regulations on the economy, second- and third-order effects often create unintended consequences, experts and industry groups told Fortune last year."

Credit cards provide benefits like emergency liquidity, travel financing, and rewards, but also create persistent debt for many consumers. Rising U.S. APRs have intensified that debt burden, with average rates climbing from under 15% to over 21% by 2024 and some accounts exceeding 30%. Proposals from political leaders seek a 10% cap on card interest to relieve borrowers and curb lender profits. Such caps could restrict access to credit, diminish rewards programs, and trigger second- and third-order economic effects that alter lending practices and consumer benefits. Financial institutions strongly oppose sweeping rate caps.

Read at Fortune