President Donald Trump’s proposal to cap credit card interest rates at 10 percent has transitioned from a presidential talking point into a legislative front with potential bipartisan momentum.

At the World Economic Forum in Davos, Switzerland earlier this week, the president shifted from previous rhetoric suggesting administrative enforcement, calling on Congress to enact a formal one-year 10-percent APR cap on all credit card interest rates.

Trump characterized high interest rates as “usury” and a primary obstacle to American prosperity. He said one of the biggest barriers to a down payment on a house has been the surge in credit card debt, citing interest rates of 28, 30, 31 and 32 percent.

Congresswoman Waters’ Amendment

Trump’s proposal has found an ally in Congresswoman Maxine Waters (D-CA), ranking member of the House Financial Services Committee. During a committee markup, Waters introduced a formal amendment to cap interest rates at 10 percent, echoing the president’s perspective that the cost of living has become untenable for working families.

In a statement during the markup, the congresswoman aligned herself with the president’s Davos remarks, focusing her criticism on the profit margins of the nation’s six largest banks. The amendment did not receive a vote, but was rather a discussion item. Ultimately, the bill did not pass committee consideration.

The credit union movement is sounding the alarm, urging congressional lawmakers to not support these efforts. California’s Credit Unions, Nevada’s Credit Unions, America’s Credit Unions, and other state leagues argue that while the credit card interest rate cap is framed as an affordability measure, it will likely be a financial impediment for the families it intends to help.

Call to Action – Join a Meeting with Rep. Waters on Feb 1

On Sunday, February 1 at 1:30 p.m., California’s Credit Unions will meet with Congresswoman Maxine Waters and is calling on CEOs and advocacy professionals to join the meeting. For more information, please email Stephanie Cuevas.

During the meeting, advocates will discuss data on how a credit card interest rate cap would shrink the credit available to California families, as well as other topics — including the Credit Card Competition Act, the rising cost of fraud, and credit unions’ member-centric cooperative model. The following points will drive the discussion on credit card interest rate caps:

• The credit access gap. A rigid 10-percent interest rate cap does not lower costs; it restricts access. When lenders cannot price for risk in a safe and sound manner, they reduce liquidity and pull back from higher-risk borrowers with lower credit scores.
• The credit union distinction. Unlike the large six banks cited by Waters, credit unions are member-owned and already operate under a statutory 18-percent cap (recently extended by the National Credit Union Administration). Their average credit card interest rates are already below market, currently at roughly 12.8 percent.
• Safety and soundness. An arbitrary 10-percent cap could force financial institutions to cut services or introduce annual fees to cover the operational costs of unsecured lending.

California’s Credit Unions would like to thank every credit union leader and advocate for their engagement on this issue. The league is actively working with congressional legislators from across the state on this topic.