U.S. President Donald Trump’s proposal that credit card interest rates be capped at 10 per cent could bring short-term relief to some consumers but is likely to cause a broader credit crisis in the long run, according to experts.
Earlier this month, Trump wrote on Truth Social that credit card companies had until Jan. 20 to impose the cap, and that his administration won’t let Americans be “ripped off” by rates of up to 20 or 30 per cent.
The companies haven’t budged. So Trump is urging Congress to pass legislation that will turn the proposal into law, drawing some bipartisan support as well as criticism from prominent Republican politicians.
While it might briefly relieve some affordability pressures, an artificial cap on interest rates will “create a scarcity in the availability of credit,” RSM chief economist Joseph Brusuelas told CBC News.
The idea is that credit card companies might be less willing to lend money to “riskier” borrowers, such as those with a low credit score, if they can’t offset the risk with high interest payments.
Most financial institutions set rates using a specific formula: combining the central bank’s benchmark interest rate with a separate figure that is based on an individual borrower’s risk level.
Caps like the one Trump has proposed, “even if they prove popular in the short-term, over time tend to hurt the exact populations that they intend to help,” he said, because lower-income households that rely on credit to make ends meet will have less access to it and may pull back on their spending in response.
Ultimately, that could have larger ramifications for the economy, according to Brusuelas.
“Yes, it’ll help on debt levels, household debt levels. But they won’t be able to spend. The economy slows. Usually when the economy slows, unemployment tends to rise,” he said.
“So again, you’re restricting the availability of credit to downmarket households. And then over time, for some at least, their employment status may be put in jeopardy as the economy slows.”
The average U.S. credit card interest rate was 23.79 per cent in January, according to the online financial marketplace LendingTree. Rates for subprime borrowers can exceed 30 per cent.
‘Economic disaster’
Trump has been under pressure to act on the affordability promises made during his 2024 presidential campaign, which included a credit card rate cap as a means of tackling rising household debt.
Most Republicans outside of his MAGA base say they are upset with how the administration handled the cost of living file during its first year, according to a recent Angus Reid survey.
The U.S. banking sector, which generates much…
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