1 00:00:02,720 --> 00:00:08,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,160 --> 00:00:12,200 Speaker 2: President Donald Trump was front and center at the World 3 00:00:12,240 --> 00:00:16,280 Speaker 2: Economic Forum at Davos this week with an unprecedented and 4 00:00:16,360 --> 00:00:19,640 Speaker 2: winding speech on Greenland, Europe, and NATO. 5 00:00:19,880 --> 00:00:24,640 Speaker 3: It's great to be back in beautiful Davos, Switzerland. 6 00:00:25,400 --> 00:00:27,560 Speaker 2: If you haven't heard it, We've linked our episode on 7 00:00:27,560 --> 00:00:30,520 Speaker 2: Trump's case for why the US should take over Greenland 8 00:00:30,920 --> 00:00:35,640 Speaker 2: and NATO and Europe's response in our show notes. Trump's 9 00:00:35,640 --> 00:00:38,600 Speaker 2: speech also included a nod to a key issue for 10 00:00:38,720 --> 00:00:41,080 Speaker 2: many Americans, affordability. 11 00:00:41,280 --> 00:00:43,600 Speaker 3: One of the biggest barriers to saving for a down 12 00:00:43,640 --> 00:00:46,920 Speaker 3: payment has been surging credit card debt, and. 13 00:00:46,920 --> 00:00:50,800 Speaker 2: A return to an idea from his presidential campaign capping 14 00:00:50,920 --> 00:00:53,080 Speaker 2: interest rates on credit cards. 15 00:00:53,120 --> 00:00:56,440 Speaker 3: The profit margin for credit card companies now exceeds fifty 16 00:00:56,480 --> 00:01:00,680 Speaker 3: percent one of the biggest, and they charge America interest 17 00:01:00,760 --> 00:01:05,080 Speaker 3: rates of twenty eight percent, thirty percent, thirty one percent, 18 00:01:05,200 --> 00:01:06,280 Speaker 3: thirty two percent. 19 00:01:06,600 --> 00:01:09,479 Speaker 2: He went on to announce he's asking Congress to cap 20 00:01:09,560 --> 00:01:13,000 Speaker 2: credit card interest rates at ten percent for one year. 21 00:01:13,200 --> 00:01:16,720 Speaker 4: This director from Trump is targeting banks crown jewels, and 22 00:01:16,760 --> 00:01:19,679 Speaker 4: that really is what credit cards are to a lot 23 00:01:19,720 --> 00:01:22,640 Speaker 4: of these really profitable banks in the US. 24 00:01:22,920 --> 00:01:26,120 Speaker 2: Claire Ballentine is a finance reporter for Bloomberg News. 25 00:01:26,360 --> 00:01:29,720 Speaker 4: We just had bank earning season, and the banks have 26 00:01:29,880 --> 00:01:33,959 Speaker 4: spoken out against it, and we've even seen certain bank 27 00:01:34,080 --> 00:01:38,040 Speaker 4: CEOs say that, you know, it could potentially even cause 28 00:01:38,440 --> 00:01:42,320 Speaker 4: a recession if Trump imposes this executive order. 29 00:01:43,160 --> 00:01:46,680 Speaker 1: The lack of credit would result in greatly reduced consumer 30 00:01:46,720 --> 00:01:49,640 Speaker 1: spending and would likely bring on a recession. 31 00:01:49,880 --> 00:01:52,880 Speaker 4: That was the Capitol One ceo said that this week. 32 00:01:53,000 --> 00:01:56,120 Speaker 4: So banks really hate it, but yeah, I mean, credit 33 00:01:56,200 --> 00:01:59,920 Speaker 4: card debt is a huge issue for a lot of Americans. 34 00:02:03,840 --> 00:02:06,240 Speaker 2: I'm Sarah Holder and this is the big take from 35 00:02:06,240 --> 00:02:10,680 Speaker 2: Bloomberg News today on the show, what Trump's proposed cap 36 00:02:10,760 --> 00:02:14,639 Speaker 2: on credit card interest rates could mean for banks and 37 00:02:15,040 --> 00:02:17,440 Speaker 2: would it help or hurt borrowers. 38 00:02:22,080 --> 00:02:24,880 Speaker 4: A lot of Americans have credit card debt. The reason 39 00:02:24,919 --> 00:02:26,840 Speaker 4: that a lot of credit card debt is so harmful 40 00:02:26,840 --> 00:02:30,680 Speaker 4: for Americans is the high interest rates that come with 41 00:02:30,800 --> 00:02:31,720 Speaker 4: a carrying of balance. 42 00:02:32,040 --> 00:02:35,280 Speaker 2: According to the Federal Reserve, the average credit card interest 43 00:02:35,360 --> 00:02:37,880 Speaker 2: rate was around twenty one percent last year. 44 00:02:38,080 --> 00:02:40,040 Speaker 4: If you pay your card off every month, you don't 45 00:02:40,120 --> 00:02:42,560 Speaker 4: have a balance, but if you do, there's a really 46 00:02:42,639 --> 00:02:43,919 Speaker 4: high interest rate for it. 47 00:02:44,240 --> 00:02:46,720 Speaker 2: The card Act, which was passed in two thousand and nine, 48 00:02:47,120 --> 00:02:51,120 Speaker 2: protects cardholders from sudden rate hikes and hidden fees, but 49 00:02:51,480 --> 00:02:55,000 Speaker 2: as it stands, there's no federal law limiting the rates 50 00:02:55,160 --> 00:02:59,160 Speaker 2: lenders can charge. Usury laws, which exist at the state 51 00:02:59,240 --> 00:03:03,639 Speaker 2: level cap interest rates, but they vary greatly, and since 52 00:03:03,680 --> 00:03:06,400 Speaker 2: they often apply to where banks are headquartered and not 53 00:03:06,480 --> 00:03:10,360 Speaker 2: where cardholders live, consumers might still end up paying a 54 00:03:10,440 --> 00:03:13,840 Speaker 2: rate higher than their state's cap. The result is a 55 00:03:13,880 --> 00:03:18,880 Speaker 2: patchwork system of protections an amounting debt burden on American consumers. 56 00:03:19,720 --> 00:03:22,840 Speaker 4: In the third quarter of twenty twenty five, US bars 57 00:03:22,840 --> 00:03:26,600 Speaker 4: were carrying a record one point two to three trillion 58 00:03:26,680 --> 00:03:28,839 Speaker 4: in credit card debt. That's according to the New York 59 00:03:28,840 --> 00:03:32,640 Speaker 4: Federal Reserve. And it's really easy for this kind of 60 00:03:32,680 --> 00:03:36,720 Speaker 4: thing to spiral with interest rate payments. And there's one 61 00:03:36,760 --> 00:03:40,400 Speaker 4: study from Vanderbilt that says that capping interest rates at 62 00:03:40,400 --> 00:03:43,560 Speaker 4: ten percent could reduce consumer interest payments by more than 63 00:03:43,720 --> 00:03:45,360 Speaker 4: one hundred billion a year. 64 00:03:45,840 --> 00:03:49,120 Speaker 2: Right now, credit card issuers, which are tied to banks 65 00:03:49,400 --> 00:03:53,440 Speaker 2: set the interest rates on their cards. JP Morgan, Chase, City, 66 00:03:53,480 --> 00:03:56,480 Speaker 2: and Capital One account for nearly eighty percent of the 67 00:03:56,560 --> 00:04:00,040 Speaker 2: US credit card market. By credit and charge volume, and 68 00:04:00,120 --> 00:04:03,560 Speaker 2: Claire says collecting interest is a fundamental part of their 69 00:04:03,600 --> 00:04:08,200 Speaker 2: business and a very profitable one. That's why proponents of 70 00:04:08,240 --> 00:04:11,120 Speaker 2: capping interest rates think there's room to lower rates and 71 00:04:11,200 --> 00:04:15,560 Speaker 2: still allow the banks to make money. Banks see things differently. 72 00:04:16,000 --> 00:04:19,359 Speaker 4: So the reason that credit card interest rates are so high, 73 00:04:19,839 --> 00:04:23,440 Speaker 4: banks would argue, is because you're borrowing money. When you're 74 00:04:23,440 --> 00:04:27,000 Speaker 4: carrying a balance on a credit card, that's not your money, 75 00:04:27,040 --> 00:04:30,640 Speaker 4: but you're supposed to pay it back. And unlike with 76 00:04:31,320 --> 00:04:34,400 Speaker 4: a loan, you know, say like a house or a car, 77 00:04:34,920 --> 00:04:38,120 Speaker 4: where if you don't pay it, banks can repossess it. 78 00:04:38,200 --> 00:04:41,080 Speaker 4: You can have a car taken away, a home taken away. 79 00:04:41,720 --> 00:04:44,760 Speaker 4: With credit cards and putting money on credit cards, there's 80 00:04:44,760 --> 00:04:47,200 Speaker 4: no way for them to do that. So that's why 81 00:04:47,680 --> 00:04:50,320 Speaker 4: banks argue that the rates have to be as high 82 00:04:50,360 --> 00:04:56,400 Speaker 4: as they are. Various stakeholders can argue with how high 83 00:04:56,400 --> 00:04:59,040 Speaker 4: it is, if they really need to be that high, 84 00:04:59,360 --> 00:05:01,240 Speaker 4: you know, a banks could still make a profit with 85 00:05:01,279 --> 00:05:04,560 Speaker 4: a slightly lower interest rate. That is all really in 86 00:05:04,600 --> 00:05:07,560 Speaker 4: the in the zeitgeist of conversation right now, but in 87 00:05:07,680 --> 00:05:10,560 Speaker 4: general it's a big part of banks business model, and 88 00:05:10,680 --> 00:05:13,520 Speaker 4: you know, for consumers that have. You know, these fancy 89 00:05:13,520 --> 00:05:16,640 Speaker 4: credit cards that give them perks like airline access and 90 00:05:16,680 --> 00:05:19,680 Speaker 4: things like that. These high interest rates on cards are 91 00:05:19,680 --> 00:05:23,200 Speaker 4: a lot of the ways that those things are able 92 00:05:23,240 --> 00:05:25,719 Speaker 4: to be offered. You know. Some of these CEOs have 93 00:05:25,800 --> 00:05:28,640 Speaker 4: come out and said that doing this and hurting banks 94 00:05:28,680 --> 00:05:33,839 Speaker 4: profitability and potentially reducing credit access to consumers could be 95 00:05:33,839 --> 00:05:35,240 Speaker 4: a real negative for the economy. 96 00:05:36,320 --> 00:05:39,440 Speaker 2: JP morgan Chase, for instance, said its credit card interest 97 00:05:39,560 --> 00:05:41,880 Speaker 2: rates drove the bulk of the banks twenty five and 98 00:05:41,880 --> 00:05:45,160 Speaker 2: a half billion dollars of revenue for its card services 99 00:05:45,200 --> 00:05:48,680 Speaker 2: and auto unit in twenty twenty four. A ten percent cap, 100 00:05:48,760 --> 00:05:52,560 Speaker 2: the bank said, could significantly change its card business and 101 00:05:52,640 --> 00:05:53,720 Speaker 2: be bad for consumers. 102 00:05:53,920 --> 00:05:57,960 Speaker 1: It would be a economic disaster. And I'm not making 103 00:05:58,000 --> 00:05:59,880 Speaker 1: up because our business, you know, we would survive that. 104 00:06:00,160 --> 00:06:04,240 Speaker 2: JP Morgan Chase CEO Jamie Diamond at Davos earlier this week. 105 00:06:04,120 --> 00:06:06,600 Speaker 1: In the worst caste of they have a drastic reduction 106 00:06:07,000 --> 00:06:09,040 Speaker 1: of the credit card business. I mean drafted, I mean 107 00:06:09,080 --> 00:06:11,560 Speaker 1: like ten percent, I mean like eighty percent. It would 108 00:06:11,560 --> 00:06:14,479 Speaker 1: remove credit from eighty percent of Americans, and that is 109 00:06:14,480 --> 00:06:15,520 Speaker 1: their backup credit. 110 00:06:15,880 --> 00:06:18,240 Speaker 2: A trade group for banks puts the number of people 111 00:06:18,240 --> 00:06:22,000 Speaker 2: who could be impacted much lower, though it's still significant. 112 00:06:22,440 --> 00:06:26,039 Speaker 2: The Bank Policy Institute estimates around fourteen million people and 113 00:06:26,120 --> 00:06:29,760 Speaker 2: families could have their credit lines eliminated or reduced if 114 00:06:29,760 --> 00:06:31,560 Speaker 2: a ten percent cap is introduced. 115 00:06:31,880 --> 00:06:33,920 Speaker 4: This all goes back to this idea that you know, 116 00:06:34,000 --> 00:06:38,320 Speaker 4: banks aren't going to lend unprofitably and not being able 117 00:06:38,400 --> 00:06:42,680 Speaker 4: to charge these fees has led a lot of experts 118 00:06:42,760 --> 00:06:45,920 Speaker 4: to to say that if they can't charge these high 119 00:06:45,960 --> 00:06:49,600 Speaker 4: interest rates, they're going to pull back on allowing some 120 00:06:49,640 --> 00:06:53,280 Speaker 4: of the riskiest borrowers to have credit access. A lot 121 00:06:53,279 --> 00:06:55,640 Speaker 4: of people don't don't realize that that, you know, the 122 00:06:55,680 --> 00:06:59,000 Speaker 4: cap wouldn't just mean, you know, suddenly they aren't being 123 00:06:59,080 --> 00:07:02,120 Speaker 4: charged as much on their card balances. It would mean 124 00:07:02,200 --> 00:07:05,400 Speaker 4: that people wouldn't be able to get credit cards and 125 00:07:05,440 --> 00:07:08,159 Speaker 4: wouldn't be able to borrow money in the way that 126 00:07:08,200 --> 00:07:10,720 Speaker 4: they are right now. You know, barroers with lower credit 127 00:07:10,720 --> 00:07:14,400 Speaker 4: scores might not be able to get credit cards if 128 00:07:14,440 --> 00:07:18,200 Speaker 4: the interest rate was capped, and that could, you know, 129 00:07:18,280 --> 00:07:22,760 Speaker 4: theoretically push them into much riskier credit. 130 00:07:22,480 --> 00:07:26,720 Speaker 2: Products, products like payday loans, which can have even higher 131 00:07:26,760 --> 00:07:31,320 Speaker 2: interest rates than credit cards coming up. Capping credit card 132 00:07:31,440 --> 00:07:35,040 Speaker 2: interest rates is an idea that's historically had bipartisan support 133 00:07:35,360 --> 00:07:37,680 Speaker 2: for the relief it could bring borrowers who fall behind 134 00:07:37,720 --> 00:07:53,920 Speaker 2: on payments. Could it go from proposal to policy. Trump's 135 00:07:53,920 --> 00:07:57,600 Speaker 2: initial social media post about capping credit card interest rates 136 00:07:57,920 --> 00:08:01,680 Speaker 2: set a January twentieth deadline forks to comply, but that 137 00:08:01,800 --> 00:08:06,320 Speaker 2: deadline has come and gone. Bloomberg's Claire Balentine says there's 138 00:08:06,400 --> 00:08:09,800 Speaker 2: essentially two ways this could move forward. Trump signs an 139 00:08:09,840 --> 00:08:14,600 Speaker 2: executive order where Congress passes a law. An executive order 140 00:08:14,680 --> 00:08:18,160 Speaker 2: might be subject to legal challenges, but Congress has been 141 00:08:18,200 --> 00:08:19,760 Speaker 2: interested in this idea before. 142 00:08:20,360 --> 00:08:23,520 Speaker 4: I think that's something that perhaps you know Trump and 143 00:08:23,560 --> 00:08:26,960 Speaker 4: other lawmakers are kind of banking on, is that there 144 00:08:27,080 --> 00:08:31,240 Speaker 4: has been support for this from both sides of the aisle. 145 00:08:31,840 --> 00:08:37,119 Speaker 2: In twenty nineteen, Senator Bernie Sanders and Representative Alexandria Ocasio Cortes, 146 00:08:37,480 --> 00:08:42,200 Speaker 2: both Democrats, proposed a fifteen percent cap, and just last year, 147 00:08:42,480 --> 00:08:46,000 Speaker 2: Sanders and Republican Senator Josh Holly teamed up on a 148 00:08:46,000 --> 00:08:48,720 Speaker 2: bipartisan bill proposing a ten percent limit. 149 00:08:48,880 --> 00:08:51,680 Speaker 3: Talk is cheap, but if he's really ready to put 150 00:08:51,760 --> 00:08:53,920 Speaker 3: up and get something done, then let's do it. 151 00:08:54,640 --> 00:08:58,720 Speaker 2: On CNBC last week Democratic Senator Elizabeth Warren said she'd 152 00:08:58,720 --> 00:09:02,880 Speaker 2: work with Trump if he's furious about addressing affordability, including 153 00:09:03,040 --> 00:09:05,120 Speaker 2: making credit card caps a reality. 154 00:09:05,800 --> 00:09:10,199 Speaker 4: There have been really broad bipartisan support over the years. 155 00:09:10,800 --> 00:09:14,000 Speaker 4: You know, that's very different though than actually passing something. 156 00:09:14,400 --> 00:09:17,760 Speaker 2: Why haven't we seen a credit card interest rate cap before? 157 00:09:18,040 --> 00:09:21,560 Speaker 4: One lawmakers can't really agree on, you know, the exact 158 00:09:21,559 --> 00:09:24,559 Speaker 4: specifics of it. And two, you know, there's really powerful 159 00:09:25,400 --> 00:09:28,960 Speaker 4: lobbying from from banks and from the financial services industry 160 00:09:29,000 --> 00:09:32,280 Speaker 4: that is saying that we need to have these high 161 00:09:32,320 --> 00:09:34,720 Speaker 4: interest rates and then if not, you know, then that 162 00:09:34,760 --> 00:09:38,680 Speaker 4: could have negative effects for consumers. So it's it's almost, 163 00:09:38,880 --> 00:09:41,320 Speaker 4: you know, a messaging question. And you know, the big 164 00:09:41,320 --> 00:09:43,679 Speaker 4: banks in the US are really powerful. You know, they 165 00:09:43,679 --> 00:09:45,480 Speaker 4: make a ton of money, they employ a lot of people, 166 00:09:46,120 --> 00:09:51,040 Speaker 4: and so there's there's really strong pushback from the financial industry. 167 00:09:51,240 --> 00:09:54,720 Speaker 2: But Claire says some banks may be considering responding to 168 00:09:54,760 --> 00:09:59,720 Speaker 2: Trump's idea with their own counter offers. Built, a firm 169 00:09:59,760 --> 00:10:03,240 Speaker 2: known for offering rewards on rent and mortgage payments, is 170 00:10:03,320 --> 00:10:06,360 Speaker 2: unveiling three new cards that will have rates capped at 171 00:10:06,400 --> 00:10:10,120 Speaker 2: ten percent for a year. Bloomberg has also reported that 172 00:10:10,200 --> 00:10:13,520 Speaker 2: bank of America and City Group, according to people familiar 173 00:10:13,520 --> 00:10:15,880 Speaker 2: with the matter who asked not to be identified citing 174 00:10:15,920 --> 00:10:20,080 Speaker 2: private information, are both separately considering offering cards with a 175 00:10:20,120 --> 00:10:23,200 Speaker 2: ten percent rate. Representatives for a Bank of America and 176 00:10:23,240 --> 00:10:27,280 Speaker 2: City Group declined to comment. But a selection of cards 177 00:10:27,320 --> 00:10:31,119 Speaker 2: with lower rates isn't the same as a universal cap. 178 00:10:31,160 --> 00:10:34,240 Speaker 4: And I think, you know, right now, they started out 179 00:10:34,240 --> 00:10:37,200 Speaker 4: with Trump coming out with this broad proposal that would 180 00:10:37,200 --> 00:10:39,320 Speaker 4: be really bad for banks, and now banks are sort 181 00:10:39,360 --> 00:10:42,600 Speaker 4: of trying to say, how could we appease the president. 182 00:10:43,200 --> 00:10:45,640 Speaker 4: They're not offering those because they think they're going to 183 00:10:45,679 --> 00:10:47,880 Speaker 4: make the exact same amount of money they are from 184 00:10:47,960 --> 00:10:50,720 Speaker 4: their products that have higher interest rates. But I think 185 00:10:50,760 --> 00:10:54,360 Speaker 4: they are trying to figure out how they can, you know, 186 00:10:54,400 --> 00:11:00,080 Speaker 4: maybe appease Trump and get him back off of this 187 00:11:00,360 --> 00:11:01,320 Speaker 4: broader thread. 188 00:11:03,280 --> 00:11:06,320 Speaker 2: This is the big take from Bloomberg News. I'm Sarah Holder. 189 00:11:06,840 --> 00:11:09,720 Speaker 2: The show is hosted by Me, David Gera, and Wanha. 190 00:11:10,360 --> 00:11:13,679 Speaker 2: The show is made by Aaron Edwards, David Fox, Eleanor 191 00:11:13,720 --> 00:11:19,319 Speaker 2: Harrison Dengate, Patti Hirsch, Rachel Lewis, Krisky, Naomi Julia Press, 192 00:11:19,480 --> 00:11:24,520 Speaker 2: Tracy Samuelson, Naomi Shaven, Alex Ugia, Julia Weaver, Yang Yong, 193 00:11:24,880 --> 00:11:28,240 Speaker 2: and Taka Yasuzawa. 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