The Daily Populous Friday February 14th, 2025 night edition
Authored by investopedia.com and submitted by dwhogan

Key Takeaways Senators Bernie Sanders and Josh Hawley introduced a bill last week that would cap credit card interest rates at 10%.

Banks said a cap that low would significantly decrease the number of people it could issue credit cards to.

Analysts said the bill has little chance of passing, though the proposal formalizes one of President Trump's campaign promises.

A bipartisan pair of senators want to cap your credit card interest at less than half the typical rate. They may have President Donald Trump's support—but banks aren't so excited.

The industry is fighting a bill written by Republican Sen. Josh Hawley, R-Missouri, and Democratic Sen. Bernie Sanders, I-Vermont, that would temporarily cap rates at 10%. That's far lower than the current average APR of 24.37% calculated by Investopedia. Industry groups call the proposal a price control that would “severely restrict the availability” of credit cards for consumers.

Analysts say the bill has little chance of passing. However, it effectively formalizes a proposal that Trump floated on the campaign trail at a time when U.S. credit card debt is mounting.

Authors Say Cap Would Give Americans Relief. Issuers Say It Would Restrict Credit

The pair of senators announced the bill last week. They want the cap in place for five years.

“Working Americans are drowning in record credit card debt while the biggest credit card issuers get richer and richer by hiking their interest rates to the moon,” Hawley said in a news release. “It’s not just wrong, it’s exploitative.”

Sanders, meanwhile, said credit card companies are making “huge profits ripping off the American people.”

Trade groups, including the Consumer Bankers Association, America’s Credit Unions, and the American Financial Services Association, wrote a letter to Sanders and Hawley arguing their bill would force issuers to restrict access to credit cards because offering them at 10% APR would prompt lenders to lose money. Without credit cards, millions of consumers would turn to credit options that are “far more costly and less regulated,” the groups wrote.

Credit card debt totaled $1.17 trillion in the third quarter of 2024, according to the most recent data available from the New York Federal Reserve Bank. That's 33% higher than the third quarter of 2019, before the pandemic.

There’s 'Simply No Viable Path' For Cap

The likelihood of the bill passing is “very, very small,” Ian Katz, a financial policy analyst at Capital Alpha Partners, wrote in a recent note to clients.

Past measures have failed to gain traction, he wrote, noting Hawley’s proposal for an 18% rate cap in 2023, Sanders’ 15% rate cap bill in 2019, and a 36% rate cap offered by Sen. Jack Reed, a Rhode Island Democrat. The new bill, with an even lower cap than those previously proposed, would “raise questions about how many card issuers would want to be in that business,” Katz wrote.

Trump, who had floated a temporary 10% rate cap last year, remains a “wild card” if he returns to the idea and forces Republicans to take a closer look, Katz wrote.

"While working Americans catch up, we're going to put a temporary cap on credit card interest rates," Trump said at a campaign rally in September. "We're going to cap it at about 10%. We can't let them make 25% and 30%."

“There is little about Washington we can be sure about right now, but we can say this with emphatic certainty: this bill will not become law,” Isaac Boltansky, a policy analyst at BTIG, wrote in a note to clients.

ledow on February 13rd, 2025 at 14:33 UTC »

Payday loans were regulated in the UK so that they can't charge over a certain percentage, and so that the absolute total interest cannot exceed 100% of the original loan amount (so you can never pay more than double whatever the loan was originally for).

This killed the payday loan industry overnight (good riddance!). Before this, there were literally products advertised on TV with APRs nearing 5000%.

There's no reason you couldn't do something similar with credit cards. What it will do is hit those people RELIANT on credit cards (which you shouldn't ever be but so many people are!). They will start to get refused, or won't be able to transfer their debt to other providers. In the UK, we often have "0% APR" deals if you transfer a card balance to a rival card. You can game them and play them off against one another to basically never pay interest if you do it right and have a decent credit record. Those kinds of things would disappear.

I think our credit card industry saw the above happen to the payday loan industry and realised they don't want it to happen to them, so credit card APRs dropped around the same time. About the largest I've seen personally is 35%. Most top out at 25% and go down to 0%.

Fixing them at 10% seems.... low. Very low. But a fix would not necessarily be a bad thing, I don't think.

The average American has over $6500 in credit card debt, up to four credit cards, the average rate 28.6% APR (in line with the UK and other countries). The US credit card debt alone is $1,170,000,000,000 (1.17 trillion dollars).

And the problem with credit card debt? It can grow almost instantly, especially in a crisis (e.g. a pandemic where people lose their job). It's a dangerous and volatile kind of debt for people to have, and for countries to allow their people to have. You can't necessarily go out and double your mortgage debt tomorrow, but many people would be able to do that with their credit card debt, for instance.

(Because I play the 0% balance transfer game I describe above, I have approximately £60,000 in credit available to me here, now, today. At LUDICROUS rates, on old unused cards, etc. that cost me nothing to have and I don't use for anything, but it's there. I could, in theory, go out tomorrow and pay nearly twice than the average UK salary for something in an instant. That's a dangerous and volatile kind of debt to have, especially in a crisis. P.S. my actual debt is actually NOWHERE NEAR that amount and wouldn't ever be. But every time I balance transfer, I get another card from another bank with another line of credit on it, and the old one lets me keep my card for free).

I think credit card rates should be limited, globally. Maybe 10% is a bit low, but I also think that if you allow a higher-percentage, that rule about the TOTAL interest should also kick in. If you have $5000 of purchases and then you have paid $5000 in interest AS A RESULT of that purchase, that particular $5000 should just become interest-free and you pay it off normally. If you enforced that, you could set a higher limit on the APR, I think. So people aren't paying off even 10% interest constantly and NEVER making a dent in the actual debt itself.

GMN123 on February 13rd, 2025 at 14:27 UTC »

Those people who they wouldn't lend to at rates less than 10% are likely to get themselves into real trouble borrowing at rates above that.

PaxNova on February 13rd, 2025 at 14:22 UTC »

New rule: you can only get a credit card if you have good enough credit that they can offer 10% interest or below. Nobody else gets one.