Dangerous waters: How Trump's 10% credit card interest rate cap can turn into a gift for 'loan sharks'
&imwidth=600&imheight=450&format=webp&quality=medium "Dangerous waters: How Trump's 10% credit card interest rate cap can turn into a gift for 'loan sharks'")
Donald Trump, Americans and loan sharks Photograph: (AI-Generated image)
US President Donald Trump’s proposed 10% cap on credit card interest sounds consumer-friendly, but critics warn it could backfire. Here's how.
United States President Donald Trump on Friday (Jan 10) said that his administration will no longer let the American public be "ripped off" by credit card companies that charge 20 to 30 per cent interest rates. He called for a one-year cap of 10 per cent. While this may read like a great idea, here's why the POTUS attempting to dictate market forces could actually be a "mistake" that Americans would end up paying for.
Trump's 'anniversary gift'?
In a post on Truth Social, Trump said that the cap would take effect on January 20, 2026, exactly one year after he returned to office. This effectively makes the credit card interest cap an "anniversary gift" to the American public.
Also read | Trump says won't let Americans be 'ripped off,' offers relief from 20-30% credit card interest rates
"Effective January 20, 2026, I, as President of the United States, am calling for a one-year cap on Credit Card Interest Rates of 10%," Trump wrote. He said the date would coincide with what he called the "historic and very successful" first year of his administration.
Dangerous waters ahead
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On X, Brian Krassenstein, an anti-Trump influencer and podcaster, pointed out that “what this will do is force the credit card companies to drop all the people who have bad credit and only provide credit to those who have good and excellent credit.”
Billionaire investor Bill Ackman, who had endorsed Trump during the 2024 presidential elections also publicly criticised the proposal, warning it was a "mistake".
How can the proposal hurt Americans
As Krassenstein stated, capping the credit rate interest rates could lead to companies denying credit to Americans with bad credit scores, as a safeguard against losing money.
This could push people to seeking loans from other sources, including "loan sharks" notorious for offering unregulated, usually sky-high interest rates, and dubious terms as pointed out by Ackman: "Without being able to charge rates adequate enough to cover losses and to earn an adequate return on equity, credit card lenders will cancel cards for millions of consumers who will have to turn to loan sharks for credit at rates higher than and on terms inferior to what they previously paid."
According to the Washington-based Bank Policy Institute (BPI), "as many as two-thirds" of cardholders who regularly use credit cards for borrowing by rolling over a portion of their balance from month to month could face adverse effects. This, as per the institute, translates to "14.3 million individuals and families".
Possible ways banks might respond to the interest rate cap
As per BPI, there are a number of steps banks might take to safeguard themselves.
- They could deny credit lines to people with bad credit scores.
- Banks could reduce credit limits and raise the minimum payment required.
- They could seek to reduce costs by engaging in less marketing and promotional activity, "including by eliminating or curtailing zero-interest or low-rate promotional offers".
- For consumers whose pre-existing rates exceed the cap only marginally, banks might reduce interest rates to comply with the cap. Nevertheless, Banks' willingness depends on their credit card activities' current profitability.
Can Trump implement this unilaterally without the US Congress?
Trump did not outline how the cap would be implemented or whether it would require congressional approval. Still, he argued that the intent was clear. "Please be informed that we will no longer let the American Public be 'ripped off' by Credit Card Companies that are charging Interest Rates of 20 to 30%, and even more", he said, casting the move as part of a broader affordability push.
However, Trump cannot implement the cap unilaterally. To do it formally would require congressional legislation. His announcement, for now, is more of a proposal or call for action, and not an immediate executive order.
