Trump’s 10 percent cap on credit cards may hurt more than some imagine

Washington (TIP) – President Donald Trump’s call for putting a one-year, 10 percent cap on credit card rates certainly catches the eye — and no surprise, has caught the wrath of bankers.
Consumers are fed up with the outrageously high interest rates being charged on their credit cards. Banking experts say 10 percent is way too low to keep lending to riskier consumers with weak credit histories.
In his speech to the Detroit Economic Club on Tuesday, Jan. 13, at the MotorCity Casino Hotel, Trump called “affordability” a fake word that Democrats like to use. He said many prices, such as gas prices, already have come down to help consumers.
At the same time, though, Trump noted in his Detroit speech that he soon will provide a slew of proposals to lower consumer costs, including his effort to drive credit card companies to cap interest rates at 10 percent for one year.
“The rates are way too high,” Trump said at the Detroit Economic Club. Trump indicated that he would outline his agenda during a speech at the World Economic Forum’s annual meeting in Davos, Switzerland, next week.
Trump posted on Jan. 9 on Truth Social 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 percent, and even more.” He stated that he wants the cap to start as of Jan. 20. Trump knows he has hit a sore spot.
The average rate being offered on credit cards now is 19.65 percent — which is down slightly from 20.18 percent a year ago and up sizably from 17.35% in early January in 2020, according to data from Bankrate.com.
Roughly 61 percent of cardholders with credit card balances have been in debt for at least a year, up from 53 percent in late 2024, according to a Bankrate survey.
And, according to the survey, 47 percent of credit cardholders report carrying a credit card balance and being charged interest. About 1 in 5 debtors don’t think they’ll ever pay it off.
The last thing you want to do is charge anything on your credit card — and not pay the bill in full each month — at these absurdly high rates. Reason: You’re losing a ton of money to interest alone.
Take a charge of $1,000 on a credit card with an annual rate of 20 percent.
You ultimately could be in debt for 40 months and pay nearly $370 in interest with a 20 percent rate if you only make a minimum payment, assuming the credit card issuer requires that you pay at least $35 a month.
If the rate drops to 10 percent on $1,000 in credit card debt, you’d be in debt for 33 months and pay $147 in total interest. Yet, remember, the Trump proposal right now calls for the cap to last one year. Your interest rate likely would be higher once that cap is removed.
Either way, spending $1,000 on an iPhone ultimately could end up costing you way more than you’d imagine if you only made the required minimum payment.
Either way, I’d argue credit card debt is a great way to waste of a lot of money.
Many items you buy on a credit card — think shirts, socks, shoes, sweaters, soup — decline in value over time. You’re not investing for the long haul, as you might be when taking on a mortgage or student loan debt.
Ted Rossman, senior industry analyst for Bankrate.com, gave another example: If you make minimum payments toward the average credit card balance of $6,523 at 20 percent, you’re in debt for 219 months and your total interest expense is $9,448.
At 10 percent, that’s 196 months and $4,492 in interest. Again, it is questionable how long you’d benefit from a 10 percent rate since the Trump proposal is calling for a one-year cap.
A 10 percent annual rate isn’t something many consumers have seen for years on their credit cards. You’d have to go back to late January 2009 when the average rate that credit card issuers were marketing was 10.63 percent, according to Bankrate.com, which has been tracking credit card rates since 1985. The average rate was around 18.88 percent for much of December 1985.