Senator Asks President Trump to Cap Credit Card Interest Rates
Commentary by Steven Lofchie
Senate Banking Committee Ranking Member Elizabeth Warren urged President Trump to "use his leverage and push a bill through Congress" to cap credit card interest rates.
In an op-ed published by Fox News, Senator Warren said President Trump failed to deliver on his promise to implement a 10 percent cap on credit card interest rates. She argued that the President's request for large banks to voluntarily lower their rates by late January was ineffective and ignored by the industry. She warned that without a legislative mandate, major financial institutions will continue charging excessive rates at the same time as the administration attempts to sideline the Consumer Financial Protection Bureau.
Senator Warren stated that major banks generate significantly higher returns on credit cards compared to general lending, meaning they could lower rates and remain profitable. She emphasized that a statutory cap could save American families roughly $100 billion collectively and noted that she provided the administration with legislative proposals for an emergency rate cap that would prohibit banks from retaliating by reducing credit lines or devaluing rewards. She urged "no more delays" and asked the Senate Banking Committee to advance a bill for the President's signature this spring.
Commentary
Interfering in financial markets to mandate a lower interest level seems generally a bad idea, but tying a mandatory reduction to a prohibition on lending less money makes it a doubly bad idea. If Senator Warren believes that banks are making improper profits on credit card lending, it would seem to follow that a forced reduction in rates would not cause banks to lend less. And if the Senator is forcing banks to take risk for which they are not compensated, isn't that bad for safety and soundness?
If credit card rates are indeed unconscionably high, it would be good to try to understand why that is the case, and whether there is some factor in the market that is discouraging rate competition.