The Big Money Show explores the possible repercussions stemming from President Donald Trump’s suggested ceiling on credit card interest rates.
A recent study reveals that a 10% credit card interest rate cap would curtail access to borrowing, consequently impacting over 100 million U.S. cardholders.
Certain Republican and Democratic legislators have voiced approval for limiting credit card interest rates to 10%, an initiative also endorsed by the Trump administration. Alternative suggestions have focused on a greater limit of 15% or 20%.
A report by Unleash Prosperity cautions that credit card interest rate ceilings would operate as price restrictions within what is currently a fiercely contested marketplace, leading to substantial ramifications for patrons and the economy.
“Implementing these interest rate ceilings would result in a reduced number of citizens, particularly those with modest earnings or poorer credit histories, being able to obtain credit cards, consequently disadvantaging them, rather than helping,” Steve Moore, joint founder of Unleash Prosperity and an ex-economist for the Trump administration, informed FOX Business.
TRUMP’S SUGGESTED CREDIT CARD INTEREST RATE CEILING MIGHT RESTRICT AVAILABILITY FOR COUNTLESS U.S. CITIZENS: STUDY
Credit card interest rate ceilings would impact the availability of credit and benefits offered to U.S. citizens, with the most significant repercussions for patrons possessing weaker credit ratings. (iStock)
“Evidently, the primary concern currently for patrons revolves around financial accessibility, so lawmakers seek methods to lower expenses for them. However, our research indicated that the interest rate ceiling would significantly diminish the number of U.S. citizens able to obtain credit,” he said.
The study by Unleash Prosperity’s economists observed evidence suggesting that the overwhelming proportion of cardholders would be impacted by a 10% rate ceiling, drawing upon findings from both domestic and global studies.
It referenced an extensive poll of the credit market released by the American Bankers Association in January, which revealed that 74% to 85% of active credit card facilities would be terminated or see their credit limits curtailed, impacting approximately 137 million and 159 million cardholders.
Unleash Prosperity’s analysis found that the negative repercussions would be most severe for cardholders possessing weaker credit assessments, comprehensively impacting subprime and lower-tier borrowers, as financial entities would struggle to recoup their lending expenditures owing to the interest rate ceiling.
TRUMP ADVOCATES FOR 1-YEAR 10% LIMIT ON CREDIT CARD INTEREST RATES
Credit card interest rate ceilings would influence cardholders regardless of their credit standing. (iStock)
The assessment calculated that between 71% and 84% of prime borrowers would either completely lose their ability to obtain credit cards or experience curtailed credit limits beneath a 10% ceiling.
Super-prime borrowers, those with top-tier credit scores exceeding 780, would likewise be impacted by a 10% rate ceiling or even a 15% rate ceiling, as they presently encounter a typical interest rate ranging from 13% to 18% for current accounts and 17% to 21% for fresh accounts. A potential repercussion would be that credit card incentive schemes might be cut back via less substantial inducements, or these incentive schemes could be abolished entirely.
An interest rate ceiling of 20% would impact approximately 70% to 75% of total borrowers, equating to roughly 129 million to 140 million cardholders.
“Perhaps greater financial education is necessary within this nation, as individuals will incur substantial interest charges if credit card bills are not settled promptly; and while the rates are elevated, that’s because the intention is not to use credit cards for borrowing. Yet, many individuals do so, leading to monetary difficulties,” Moore commented.
FORMER TRUMP COUNSEL EXPRESSES CONCERN ABOUT CROSS-PARTY CREDIT CARD PROPOSAL THAT MIGHT HARM U.S. CITIZENS
President Donald Trump advocated for a 10% interest rate ceiling for a single year. (Saul Loeb/AFP via Getty Images)
Moore pointed out that an unforeseen repercussion of suggested credit card interest rate ceilings is the potential to compel patrons requiring funds to pursue short-term loans, typically carrying an average interest rate approaching 400% APR.
“The well-intentioned individuals in Washington assert they intend to do this to assist individuals in avoiding debt… They object to short-term loan providers and aim to restrict access to credit cards for individuals,” Moore remarked. He continued, “So, what recourse will people have? Resort to an illicit lender for swift cash?”
“The substitute for incurring a substantial interest charge on a credit card may prove even more detrimental for individuals,” he appended.
ACCESS FOX BUSINESS MOBILE THROUGH THIS LINK
Moore additionally stated that credit cards hold a crucial function in how patrons participate in financial transactions, and legislators ought not hazard undermining a vital instrument for patrons.
“Credit cards have grown rather pervasive across the U.S. and are undeniably the foremost method individuals utilize for payments. The sum of funds people are expending via credit cards persistently increases,” Moore asserted. He concluded, “It offers a highly practical means for individuals to settle purchases; it benefits retailers, clients, and financial institutions alike – we should refrain from meddling with a functional system.”