Credit card interest rates could cut access to more than 100M Americans: report
The Big Money Show discusses the potential fallout from President Donald Trump’s credit card interest rate cap.
A new analysis finds that 10% credit card interest rate would reduce access to credit, positively affecting more than 100 million American credit card holders in the process.
Some Republican and Democratic lawmakers have expressed support for capping credit card interest rates at 10%, a measure that has also received support from the Trump administration. Some suggestions focus on the top view of 15% or 20%.
Unleash Prosperity’s analysis warns that credit card interest rates can act as price controls in what is currently a very competitive market, leading to greater visibility. effects on consumers and the economy.
“What’s going to happen if you put these interest rates in is you’re going to have fewer low-income Americans or low-credit-score Americans who are going to be able to get credit cards and that’s going to make them worse, not better,” Steve Moore, founder of Unleash Prosperity and a former Trump administration economist, told FOX Business.
TRUMP’S CREDIT CARD INTEREST PROPOSAL COULD STEAL ACCESS TO BILLIONS OF AMERICANS: REPORT
Credit card interest rates can affect access to credit and rewards available to Americans, while the impact can be greater for consumers with low credit scores. (Stock)
“Obviously, the biggest problem right now for consumers is affordability, so politicians are looking for any way to reduce costs for consumers. But what we found in our research is that the interest rate cap will significantly reduce the number of Americans who will be able to get credit,” he said.
A report by economists at Unleash Prosperity noted that there is evidence that the majority of cardholders will be affected by the 10% rate cap, based on research from the US and other countries.
It noted a major credit market survey published by the American Bankers Association in January, which found that 74% to 85% open credit card accounts credit lines will be closed or reduced, affecting between 137 and 159 million cardholders.
An analysis by Unleash Prosperity found that the negative impact will be worst among cardholders with low credit ratings, and affect the entire world of small and medium borrowers, as financial institutions will not be able to cover the cost of borrowing due to the interest rate.
TRUMP CALLS FOR A 1-YEAR 10% CAP ON CREDIT CARD INTEREST RATES
Credit card interest rates can affect cardholders’ overall credit scores. (Stock)
The analysis estimated that between 71% and 84% of major borrowers would lose access to credit cards entirely or lines of credit reduced below the 10% cap.
Large borrowers, with high credit ratings of more than 780, will also be affected by a 10% rate or even a 15% rate, as they currently face an interest rate of between 13% to 18% for existing accounts and 17% to 21% for new accounts. One such effect would be that credit card rewards programs can be scaled back with smaller rewards, or such reward programs can be eliminated entirely.
A 20% interest rate would affect about 70% to 75% of all borrowers, or about 129 to 140 million cardholders.
“We need maybe more financial literacy in this country because you’re going to pay a lot of interest if you don’t pay your credit card on time and the rates are high, but that’s because you shouldn’t be borrowing on your credit card, and a lot of people are doing that and that’s how they get into financial trouble,” Moore said.
EX-TRUMP SHEPHERD RAISES ALARM OVER BIPARTISAN CARD SCHEME COULD HARM AMERICANS
President Donald Trump has asked for a one-year interest rate of 10%. (Saul Loeb/AFP via Getty Images)
Moore noted that an unintended effect of the credit card interest rate proposal is that it could force cash-strapped consumers to seek payday loanswith an average interest rate of nearly 400% APR.
“The kind of people who do good in Washington say they’re going to do this to help people stay out of debt… They don’t want payday lenders, they want to make it harder for people to use credit cards,” Moore said. “Well, what are people going to do, go and get money quickly?”
“The alternative way of paying high interest on a credit card can be even worse for people,” he added.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Moore also said that credit cards play an important role in how consumers participate in economic activity and that policymakers should not risk disrupting an important consumer tool.
“Credit cards are ubiquitous in the US and are the number one way people pay for transactions. The amount of money people spend on credit cards continues to grow,” said Moore. “It’s the easiest way for people to pay for things, it’s good for merchants, it’s good for customers, it’s good for banks – let’s not disrupt a system that works.”
