Trump's Proposed Change to Credit Cards—and How It Could Impact You

President Donald Trump’s proposal for a one-year cap on credit card interest rates at 10% is being met with caution by economic experts and the financial markets. Blaming the Biden Administration for the steep interest rates charged by some credit card companies, Trump vowed not to let “the American public be ripped off” any longer. Setting a short deadline, the President—who had previously floated a 10% cap—said the change will come into effect on Jan. 20, a date that holds significance as it’s the one-year anniversary of his return to the White House. Trump’s announcement on Friday evening appeared to be at the forefront of minds come Monday morning, as some U.S. credit card companies experienced drops in early trading when the New York Stock Exchange opened. American Express, Visa, and Capital One, which dropped 6% by midday trading, all experienced slight downward turns, signaling concern. “It’s a worry for many because credit cards and credit card debt are very profitable for the financial industry,” says Dr. Samuel Gregg, president of the American Institute for Economic Research. The market reaction came after several high-profile trade associations for the banking industry issued a joint statement expressing their concern over Trump’s plans. “Evidence shows that a 10% interest rate cap would reduce credit availability and be devastating for millions of American families and small businesses who rely on and value their credit cards, the very consumers this proposal intends to help,” the groups said, arguing that, if introduced, the cap would simply  “drive consumers toward less regulated, more costly alternatives.” The average interest rate for credit cards in the U.S. is roughly 20%, meaning Trump plans to half that for his one-year cap. Interestingly, Trump is not the first to suggest such a change. Bipartisan legislation from independent Sen. Bernie Sanders of Vermont and Republican Sen. Josh Hawley of Missouri pushed for a temporary 10% cap on credit card interest rates in February last year. The latest action on the bill saw it referred to the Committee on Banking, Housing, and Social Affairs. Democratic Sen. Elizabeth Warren of Massachusetts, a ranking member of the Banking Committee, was initially hesitant about Trump’s announcement, accusing him of being a “fraud” who doesn’t care about the affordability crisis. On Monday, Warren reiterated her stance during a speech about the importance of lowering costs for Americans, whereby she called out Trump for not following through on his promises to help on that front. Afterwards, she received a call from Trump and the two discussed the credit card-related cap further, along with other cost-of-living matters. Warren later told CBS News that she has been proposing a cap on credit card interest rates for years. However, with 216 million Americans thought to have a credit card account in their name, just how useful would such a cap prove to be for the average consumer? TIME spoke with economic experts about what exactly Trump is proposing, the risks involved, and how it could impact American credit card-holders.  How would Trump’s cap on credit card interest rates work and how might it impact the market? As Trump did not specify how such a cap might be introduced or if the action would be legally viable, even some experts have unanswered queries. In the simplest terms, from what we know thus far, Trump’s proposal would prevent credit card issuers and banks from charging over 10% on credit card interest for a year. “When you mess around with the market price for anything, whether it’s housing or credit, then you distort the market signals about what’s available in terms of the goods or service,” says Gregg.  He believes that should such a cap come into effect, banks would stop making credit available to consumers that need higher amounts of credit and those with less stable incomes. Thus riskier accounts would risk being closed altogether. What are the possible benefits of Trump’s capped interest rate for credit card holders? According to a survey conducted by Bankrate in December, 47% of all American credit card holders say they currently hold a credit card balance and at least one in five of those with debt believe they will likely never pay their balance off. Trump has not signaled whether the year-long interest rate would apply to all existing credit accounts, or those opened after Jan. 20. TIME has contacted the White House for comment. For those with existing high levels of debt, a lower interest rate could provide some breathing space. “A cap might enable people to pay off some debt at a lower rate than they otherwise thought they were going to,” says Gregg, but he notes that such benefits would likely be short-term, as those same people “may find it harder to access credit long-term as a consequence of that.” What are the potential risks of Trump’s capped interest rate for credit card holders? Those that require credit frequently and struggle to pay it back on time would be most vulnerable. “If there’s a credit card cap put in place, then banks have no incentives to lend to those people,” says Gregg. “It would become harder for people who either have bad credit histories, or who don’t have huge incomes or have a certain degree of financial instability, for them to get credit at all.” Families and small business owners “typically rely on credit to be able to pay for things that they need in the here and now,” says Greggs, suggesting that these groups are most at risk of being rejected for credit from banks. This caution from credit card companies and banks could leave many Americans cut off from credit revenues via regulated avenues, and they could fall vulnerable to other options, such as loan sharks, fears Gregg.  Americans relying more on less regulated lenders could also end up paying more interest as a result. “These interest rates are more costly, people end up paying more than they otherwise would in the absence of a strict cap,” he explains.“This is a classic example of a policy that may be well-intentioned, but has negative consequences for the people that it ostensibly seeks to help.” What is the potential impact on banks? Any measure on credit interest caps will have an effect on both consumers and the market. And if a significant number of Americans cannot access credit from prominent lenders, banks could feel the hit, too. “If there are fewer people using credit cards, and the interest rates are lower, there’s less incentive for people to invest in credit card companies or banks that extend and manage a lot of credit card operations,” says Gregg. Smaller, regional banks could feel an even larger hit, as they may be more dependent on earnings from credit payments.