With a temporary rate cap of 10%, a new plan from a bipartisan pair would cut credit card interest rates in half for many Americans who currently pay rates of over 20%.
A new plan from Senators Bernie Sanders of Vermont and Josh Hawley of Missouri would limit credit card annual percentage rates, or APRs, to 10% for five years at a time when Americans have accumulated over $1 trillion in credit card debt and default rates are high.
Sanders, an independent who caucuses with Democrats, said that the interest rates that card issuers charge consumers are “extortion and loan sharking.” They’re “exploitative,” Republican Hawley added.
They claimed that passing legislation based on one of President Donald Trump’s campaign promises was the answer. After inflation hit a four-decade high under the Biden administration, Trump ran on a platform of cutting everyday expenses. He even suggested lowering credit card charges at a rally in September.
“We’re going to temporarily cap credit card interest rates while working Americans catch up. We will set a cap of approximately 10%. To cheers, Trump remarked, “We can’t let them make 25% and 30%.”
There seems to be widespread public support for such a proposition. According to 77% of respondents to a November LendingTree poll (TREE), credit cards ought to have a rate cap. According to two-thirds of those who favored rate caps, they would forgo card benefits in return for capped annual percentage rates.
A request for comment on the bill was not immediately answered by the White House.
Even though the Federal Reserve has started to reduce its benchmark rate, the legislation highlights the high interest rates that consumers still pay, regardless of its future.
Preliminary data from the Federal Reserve shows that in November, the average annual percentage rate (APR) for American credit cards was 21.47%, while the rate for cards with monthly amounts that were not paid off was 22.80%. The prime rate, which is three percentage points higher than the Fed’s short-term rate, is used by banks to determine their annual percentage rates.
While there isn’t a federal statute that prohibits usury in general, military service members are protected from rates higher than 36% on consumer credit products.
A 2023 investigation by the Consumer Financial Protection Bureau found that card issuers charged over $25 billion in fees and $105 billion in interest in 2022. According to the organization, markups on APRs have been growing over the past ten years.
In the third quarter of 2024, analysts at the Federal Reserve Bank of Philadelphia found that the percentage of active credit-card accounts that only pay the minimum monthly amount reached a 12-year high.
In the meantime, Sanders and Hawley’s bill was swiftly criticized by a banking sector trade group. According to the Consumer Bankers Association, a credit-card rate cap would have the opposite effect and prevent many consumers from obtaining credit.
“Price-setting is political pandering that has, time and time again, proven to harm Americans,” stated the trade association. “These socialist-type pricing policies are the best way to drive up costs for consumers and push access to credit further out of reach for millions of consumers.”
In the past, Sanders and Hawley have each attempted to lower card rates through legislation, but such attempts were unsuccessful. Hawley proposed legislation in 2023 capping credit card annual percentage rates (APRs) at 18%, which is comparable to the rate cap that federal credit unions now offer. Sanders and New York Democrat Representative Alexandria Ocasio-Cortez collaborated on a bill in 2019 that would have set an APR cap of 15%.
“Definitely crept up in recent years,” Ted Rossman, senior industry analyst at Bankrate, said of the margins credit card issuers add to their annual percentage rates. Although some card APRs can be far higher, he pointed out that the current national average for a new card offer is 20.12%.
It would be “dramatic,” according to Rossman, to cap rates at 10%. He expressed concern about “unintended consequences” such as fewer rewards for cardholders and restricted access to credit.
“Banks may claim that high rates are necessary for them to make money,” he remarked. This is especially true since credit card debt lacks security that would allow lenders to pursue collection in the case of nonpayment. “But I know a lot of people think they are paying way too much on their cards,” Rossman said.
