9 pm Friday work emails and 10% credit card rate caps
One topic has dominated my week, and it all started with a late-night email. Here's what you need to know.
Hi there, my friend.
In my job as Personal Finance Expert Guy, I don’t often get an email at 9 pm on a Friday asking me to comment on breaking news while I’m having a nice, leisurely evening watching TV with my wife. However, that’s exactly what happened last week.
The email came from an online journalist with whom I’ve worked for many years, and the subject line was as follows...
“Quick comment on Trump capping APRs”
The first line of the email…
“We are writing up a quick story on President Trump saying he’s going to cap credit card APRs at 10% for the next year.”
Umm, he’s doing what now?
Once I saw that, I knew I was done watching TV for the evening. I apologized to my wife and headed upstairs to my office to see what was going on.
The announcement and the immediate fallout
Here’s what happened:
On Friday night, President Trump announced in a post on Truth Social that he was “calling for a one-year cap on credit card interest rates of 10%,” which would be effective on January 20.
Some context: That cap would be a massive change. Currently, there is no national maximum interest rate that can be charged on credit cards. The average interest on a new credit card today is nearly 24% — about 2.5 times that of the proposed cap rate — and rates for store credit cards average above 30%. If you owe $7,000 on a card and pay $250 per month, reducing your interest rate from 24% to 10% would save you more than $2,300 in interest over the life of that balance.)
On Sunday, he doubled down while on Air Force One, reportedly saying that banks would be “in violation of the law” if they didn’t lower rates to 10% for a year by January 20.
On Monday morning, stock prices for several major credit card issuers fell, with many observers saying the declines were a reaction to the president’s call for a rate cap on credit cards.
Meanwhile, banks and other financial services companies quickly issued statements opposing the cap and outlining the dire consequences they claimed would result from implementing a cap. Those include credit card issuers no longer lending to people with imperfect credit and a dramatic reduction in credit card rewards across the board.
As all of this was going on, I was doing interviews with so, so many media outlets, trying to add some context to what was happening.
Is a rate cap coming?
Don’t hold your breath.
Despite cardholders overwhelmingly supporting a cap (even when they know it could lead to reduced access to credit and diminished rewards), even a temporary rate cap like the one the president proposed is still a long shot.
First of all, it is unclear under what authority the president would be able to impose the rate cap. That would likely require Congressional legislation, which is highly unlikely to pass. Credit card rate cap proposals have been made several times in recent years — by those on both sides of the aisle — but none has ever gotten any real traction in Congress. There’s no reason to think this go-round will be any different in the House and Senate.
Even if a rate cap did become reality, it likely wouldn’t be at 10%. It is possible that the 10% number might simply be a starting point for a negotiation and the final cap number would end up far higher — say 18% or 20%. (Note: Currently, credit cards issued by federal credit unions can’t have an APR higher than 18%.)
That’s not to say that some card issuers won’t go ahead and run with the idea of a 10% rate cap for a year anyway. To my knowledge, Bilt Rewards became the first credit card to do just that, announcing on Wednesday that they’d be capping rates on their new credit cards at 10% for a year. There’s a good chance that at least some others will follow suit.
If an actual cap did come, what would really happen?
There’s no question that there would be big changes. Just how big would depend on the final details of the cap.
If a 10% cap happened, the changes would be seismic, especially if it were made permanent instead of just lasting a year like the president’s proposed cap. Banks would become far less likely to lend to those with imperfect credit, and credit card rewards would be dramatically reduced.
If a higher cap came into play, such as the 18% cap we see with federal credit union credit cards, it would still be a really big deal. However, I think we would still see credit card rewards being offered and banks would still lend to those with imperfect credit. After all, we’ve seen with credit unions that rate caps and credit card rewards can coexist. They may not be as lucrative as what you see with today’s high-end bank credit cards, but they’d still be available and significant.
One important thing to understand in all of this: Banks have many levers to pull and buttons to push when it comes to raising revenue. If they were limited in their ability to raise interest rates, we would likely see them lean on other options to mitigate losses. For example, we might see banks increase fees in a big way and also be less likely to waive fees for those who ask.
So what should I do?
The cavalry probably isn’t coming, so you need to take action yourself.
A 0% balance transfer credit card can be a great option. It’s important to understand the fine print associated with these cards — especially the fees and the length of the 0% period — but they can be about the best weapon you can have against credit card debt. You’ll likely need good credit (660 to 680 or higher credit score) in order to get one, though. If you don’t have that, a low-interest personal loan can help lower your rates, too.
Of course, you can also ask for a lower interest rate on your credit card. As I’ve detailed many times here at “Ask, Save, Earn” and in my book “Ask Questions, Save Money, Make More,” you’re far more likely than you think to get your request granted. The latest survey from LendingTree showed that 83% of those who asked for a lower APR on a credit card in the past year got their way, and the average reduction was 6 to 7 points.
That’s a big, big deal. In my book, I lay out word-for-word scripts on how to ask for this. I also wrote about it in detail here…
I’ve said it before and I’ll say it again — You have way more power over your money than you realize. You don’t have to wait for the president, the Federal Reserve or anyone else to come to the rescue. You just need to be willing to ask.
Until next time!
Matt