Proposed Credit Card Interest Rate Cap Could Save Americans Billions

Recent findings suggest that limiting credit card interest rates could save Americans roughly $100 billion annually, according to a study from Vanderbilt University. The study indicates that implementing a 10% cap on such rates might be feasible.

This proposed national cap could also ensure that banks and credit card companies maintain profitability. While the scope of the proposal is narrow, it provides academic backing for President Trump’s campaign promises.

Interestingly, the research found that even with a ceiling of 15% on credit card interest rates, banks could still offer rewards that many customers enjoy. However, if the limit is set at 10%, banks might face challenges in maintaining their business models, but they could still earn returns by trimming a few perks.

Efforts to rein in high-interest rates are not new. Trump, during his 2024 campaign, suggested a temporary 10% cap on credit card rates, though he hasn’t revisited the topic since then.

The idea has caught the attention of various politicians. For example, Senators Josh Hawley and Bernie Sanders have introduced a bill in Congress to reflect Trump’s proposal. Additionally, Representative Alexandria Ocasio-Cortez has proposed similar legislation in the House.

Caps on interest rates aren’t unheard of in the U.S. Currently, the Military Loan Act restricts interest rates for active military personnel to 36%, and credit unions, regulated by the NCUA, have a cap of 18%.

Nonetheless, the banking sector is opposed to such caps, arguing that they could jeopardize the credit card business model and undermine the lucrative rewards programs that benefit many consumers.

Brian Shearer, the report’s author, became involved in this issue due to the pushback from the banking industry. He has a background in both Republican and Democratic administrations and once worked at the Consumer Financial Protection Agency.

“I wanted to see whether Trump’s proposed cap could be taken seriously,” Shearer remarked, indicating that he found merit in the concept, despite criticism surrounding it.

Consumer debt is at an all-time high, reaching about $1.21 trillion—roughly $6,400 per person. Current Federal Reserve data reveals that the average credit card interest rate stands at approximately 21%, a stark increase from around 12% a decade ago.

Banks profit from credit cards through two primary streams: transaction fees charged to merchants, known as interchange fees, and interest derived from customers’ outstanding balances. Even with high-interest rates, banks continue to turn a profit, in part due to these fees, which support reward programs that many credit card users appreciate.

Shearer’s analysis indicates that if interest rates were capped at 15%, Americans could collectively save about $48 billion in interest, with the potential for savings reaching $100 billion based on certain assumptions about bank behavior.

According to the study, banks are likely to sustain reward programs mostly through interchange fees, which might prevent a complete loss of benefits for consumers. However, those with lower credit scores could see the most significant reductions in rewards since they are typically seen as higher-risk borrowers. Still, Shearer believes that even with cuts, banks can still achieve profits.

“Yes, some rewards would need to be trimmed,” Shearer noted, “but it’s not the dramatic story many might expect.”

This study stems from Vanderbilt’s policy accelerator, aimed at exploring political trends and assessing the feasibility of proposed policy changes.