Trump’s proposed credit card limits highlight Americans’ debt. Will this help? & more related News Here

Credit card debt is becoming a burdensome burden for millions of Americans.

26-year-old Selena Cooper is one of those people struggling with this stress. A former paralegal at the Social Security Administration, she was left without a steady income when the U.S. government shut down a few months ago. After Christmas he lost his job permanently.

Cooper missed a payment on her credit card for the first time in October, when her pay checks stopped. Since then, she said her debt on her three credit cards has piled up to $6,000.

Last month, his card issuers Capital One and American Express informed him they were raising his interest rates due to late payments. The rate on his Capital One card doubled to 16%, he said, while the rate on his Amex increased from 10% to 18%.

Credit card rates have caught the attention of US President Donald Trump. Last week, he proposed setting a cap of 10% for one year from January 20 – an idea of ​​which Cooper said, “It would help a little bit, but it still wouldn’t get me out of debt”.

Cooper, who lives in Columbia, South Carolina, now relies on her photography business for income. “It will pay off small bills — but not my credit card debt,” she said.

Credit card interest rates have been increasing in recent years. Federal Reserve data shows they averaged about 22% as of November, up from 13% a decade ago. 37% of adults carry credit card balances, and total credit card debt in the US exceeds $1 trillion.

“This shows that consumers are feeling distressed, they will continue to feel distressed,” Susan Schmidt, portfolio manager at Exchange Capital Resources in Chicago, told the BBC.

“I think the Trump administration is trying to find a way out of this.”

Trump’s proposal, which was one of his campaign promises, faced a sharp reaction from bank executives, who said setting the limit would cut off consumers’ access to credit. Banks may cut credit limits or close risky accounts.

Interest fees are a source of revenue for banks and other big lenders that will reach $160bn in 2024, according to the Consumer Financial Protection Bureau – an agency that Trump largely gutted last year.

Banks are already pushing to protect that income, arguing that rate caps would be harmful to consumers. JPMorgan indicated the possibility of legal action.

“People will lose access to credit on a very, very broad and widespread basis, especially the people who need it most,” JPMorgan Chief Financial Officer Jeremy Barnum warned on the company’s earnings call Monday.

Citigroup Chief Executive Jane Fraser also opposed the proposal on Wednesday and warned of “severe impacts on access to credit and consumer spending across the country.”

Some analysts and economists agree that a limit, in itself, might not benefit consumers as much as Trump and lawmakers across the political aisle claim.

“A 10% cap may not be the right solution because it won’t help people who are already in trouble,” said Schmidt of Exchange Capital Resources.

Benedict Gutman-Kenny, an assistant professor of finance at Rice University, said banks could respond by limiting how much they lend to people with low credit scores, who are considered high-risk borrowers. These are the people who are most at risk of losing access to credit cards, he said.

Banks may try to recoup their revenue elsewhere, he said, such as by increasing annual fees or late fees.

“It’s not clear that people will be better off,” Gutman-Kenny said. “They’re still paying the same amount of money.”

But he said some bank expenses are “bloated,” meaning they have room to cut costs to keep their margins intact. For example, they could reduce how much they spend on marketing, he said.

And a recent Vanderbilt University study found that Americans would save about $100 billion a year in interest costs if a 10% rate cap were implemented.

“It’s something that people will see, they’ll notice, they’ll feel it,” said Brian Shearer, a researcher at Vanderbilt’s Policy Accelerator and author of the study.

“This alone will have a significant impact on their household budget.”

Shearer questioned a key argument presented by bank executives and their lobbyists: any reduction in rates would inevitably lead to a reduction in lending. He pointed to banks’ strong margins in the credit card market.

He said interest payments do not account for most of the revenue earned by banks from credit cards.

“No policy is without some advantages and disadvantages,” Shearer said. “To continue lending, banks will have to reduce rewards to some extent, especially for people with low FICO scores (credit scores).

“However, the savings from interest, even for those who lose some rewards, will far outweigh the lost rewards.”

Morgan, 31, who asked only her first name to be used, is among those struggling to get thousands of dollars paid.

Since last May, she has been using her Discover card to pay for her two-year-old daughter’s care while unemployed. She said she decided to send her daughter to daycare because she needed independence because of her struggles with her mental and physical health.

Those payments left her with $6,700 in credit card debt.

Morgan’s husband serves in the military and pays for the family’s other expenses. Through a service member benefits program, he achieved an interest rate of about 3% on his credit card. Had she been forced to pay the typical 27% interest rate, she said, sending her daughter to childcare wouldn’t have been an option.

“I’m losing sleep over $6,700, but I have a little wiggle room to do it because once I get a job, I can pay it off,” Morgan said.

That’s why Trump’s proposal to cap credit card rates at 10% was seen as a “step in the right direction.”

“I hope it’s really successful,” he said. “This is one of the few things he’s done that prioritizes people over businesses.”

The idea of ​​capping credit card rates has been floating around in legislative circles for years, and has received bipartisan support.

Republican Senator Josh Hawley and Democrat Senator Bernie Sanders introduced a bill last year to cap credit card interest rates at 10%.

Democratic Senator Elizabeth Warren said in a statement that she spoke to Trump this week and “told him that Congress could pass legislation to cap credit card rates if he really fought for it”.

“If he really wants to get something done, including capping credit card interest rates or lowering the cost of housing, he will use his leverage and pick up the phone,” Warren said.

Still, there are obstacles ahead. Despite some support on both sides of the aisle, getting Congress on board may prove challenging.

House Speaker Mike Johnson this week distanced himself from the rate cap proposal, citing “negative secondary effects” and the resulting reduction in lending. “This is something we will have to be very thoughtful about,” Johnson said at a news conference.

And banks are ready to continue taking strict action against it.

“If the Trump administration pushes back, I think it will be because of bank lobbying,” Vanderbilt’s Shearer said.

“It’s their cash cow. They’re not going to let it go that easily.”