Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: President Donald Trump was front and center at the World
Speaker 2: Economic Forum at Davos this week with an unprecedented and
Speaker 2: winding speech on Greenland, Europe, and NATO.
Speaker 3: It's great to be back in beautiful Davos, Switzerland.
Speaker 2: If you haven't heard it, We've linked our episode on
Speaker 2: Trump's case for why the US should take over Greenland
Speaker 2: and NATO and Europe's response in our show notes. Trump's
Speaker 2: speech also included a nod to a key issue for
Speaker 2: many Americans, affordability.
Speaker 3: One of the biggest barriers to saving for a down
Speaker 3: payment has been surging credit card debt, and.
Speaker 2: A return to an idea from his presidential campaign capping
Speaker 2: interest rates on credit cards.
Speaker 3: The profit margin for credit card companies now exceeds fifty
Speaker 3: percent one of the biggest, and they charge America interest
Speaker 3: rates of twenty eight percent, thirty percent, thirty one percent,
Speaker 3: thirty two percent.
Speaker 2: He went on to announce he's asking Congress to cap
Speaker 2: credit card interest rates at ten percent for one year.
Speaker 4: This director from Trump is targeting banks crown jewels, and
Speaker 4: that really is what credit cards are to a lot
Speaker 4: of these really profitable banks in the US.
Speaker 2: Claire Ballentine is a finance reporter for Bloomberg News.
Speaker 4: We just had bank earning season, and the banks have
Speaker 4: spoken out against it, and we've even seen certain bank
Speaker 4: CEOs say that, you know, it could potentially even cause
Speaker 4: a recession if Trump imposes this executive order.
Speaker 1: The lack of credit would result in greatly reduced consumer
Speaker 1: spending and would likely bring on a recession.
Speaker 4: That was the Capitol One ceo said that this week.
Speaker 4: So banks really hate it, but yeah, I mean, credit
Speaker 4: card debt is a huge issue for a lot of Americans.
Speaker 2: I'm Sarah Holder and this is the big take from
Speaker 2: Bloomberg News today on the show, what Trump's proposed cap
Speaker 2: on credit card interest rates could mean for banks and
Speaker 2: would it help or hurt borrowers.
Speaker 4: A lot of Americans have credit card debt. The reason
Speaker 4: that a lot of credit card debt is so harmful
Speaker 4: for Americans is the high interest rates that come with
Speaker 4: a carrying of balance.
Speaker 2: According to the Federal Reserve, the average credit card interest
Speaker 2: rate was around twenty one percent last year.
Speaker 4: If you pay your card off every month, you don't
Speaker 4: have a balance, but if you do, there's a really
Speaker 4: high interest rate for it.
Speaker 2: The card Act, which was passed in two thousand and nine,
Speaker 2: protects cardholders from sudden rate hikes and hidden fees, but
Speaker 2: as it stands, there's no federal law limiting the rates
Speaker 2: lenders can charge. Usury laws, which exist at the state
Speaker 2: level cap interest rates, but they vary greatly, and since
Speaker 2: they often apply to where banks are headquartered and not
Speaker 2: where cardholders live, consumers might still end up paying a
Speaker 2: rate higher than their state's cap. The result is a
Speaker 2: patchwork system of protections an amounting debt burden on American consumers.
Speaker 4: In the third quarter of twenty twenty five, US bars
Speaker 4: were carrying a record one point two to three trillion
Speaker 4: in credit card debt. That's according to the New York
Speaker 4: Federal Reserve. And it's really easy for this kind of
Speaker 4: thing to spiral with interest rate payments. And there's one
Speaker 4: study from Vanderbilt that says that capping interest rates at
Speaker 4: ten percent could reduce consumer interest payments by more than
Speaker 4: one hundred billion a year.
Speaker 2: Right now, credit card issuers, which are tied to banks
Speaker 2: set the interest rates on their cards. JP Morgan, Chase, City,
Speaker 2: and Capital One account for nearly eighty percent of the
Speaker 2: US credit card market. By credit and charge volume, and
Speaker 2: Claire says collecting interest is a fundamental part of their
Speaker 2: business and a very profitable one. That's why proponents of
Speaker 2: capping interest rates think there's room to lower rates and
Speaker 2: still allow the banks to make money. Banks see things differently.
Speaker 4: So the reason that credit card interest rates are so high,
Speaker 4: banks would argue, is because you're borrowing money. When you're
Speaker 4: carrying a balance on a credit card, that's not your money,
Speaker 4: but you're supposed to pay it back. And unlike with
Speaker 4: a loan, you know, say like a house or a car,
Speaker 4: where if you don't pay it, banks can repossess it.
Speaker 4: You can have a car taken away, a home taken away.
Speaker 4: With credit cards and putting money on credit cards, there's
Speaker 4: no way for them to do that. So that's why
Speaker 4: banks argue that the rates have to be as high
Speaker 4: as they are. Various stakeholders can argue with how high
Speaker 4: it is, if they really need to be that high,
Speaker 4: you know, a banks could still make a profit with
Speaker 4: a slightly lower interest rate. That is all really in
Speaker 4: the in the zeitgeist of conversation right now, but in
Speaker 4: general it's a big part of banks business model, and
Speaker 4: you know, for consumers that have. You know, these fancy
Speaker 4: credit cards that give them perks like airline access and
Speaker 4: things like that. These high interest rates on cards are
Speaker 4: a lot of the ways that those things are able
Speaker 4: to be offered. You know. Some of these CEOs have
Speaker 4: come out and said that doing this and hurting banks
Speaker 4: profitability and potentially reducing credit access to consumers could be
Speaker 4: a real negative for the economy.
Speaker 2: JP morgan Chase, for instance, said its credit card interest
Speaker 2: rates drove the bulk of the banks twenty five and
Speaker 2: a half billion dollars of revenue for its card services
Speaker 2: and auto unit in twenty twenty four. A ten percent cap,
Speaker 2: the bank said, could significantly change its card business and
Speaker 2: be bad for consumers.
Speaker 1: It would be a economic disaster. And I'm not making
Speaker 1: up because our business, you know, we would survive that.
Speaker 2: JP Morgan Chase CEO Jamie Diamond at Davos earlier this week.
Speaker 1: In the worst caste of they have a drastic reduction
Speaker 1: of the credit card business. I mean drafted, I mean
Speaker 1: like ten percent, I mean like eighty percent. It would
Speaker 1: remove credit from eighty percent of Americans, and that is
Speaker 1: their backup credit.
Speaker 2: A trade group for banks puts the number of people
Speaker 2: who could be impacted much lower, though it's still significant.
Speaker 2: The Bank Policy Institute estimates around fourteen million people and
Speaker 2: families could have their credit lines eliminated or reduced if
Speaker 2: a ten percent cap is introduced.
Speaker 4: This all goes back to this idea that you know,
Speaker 4: banks aren't going to lend unprofitably and not being able
Speaker 4: to charge these fees has led a lot of experts
Speaker 4: to to say that if they can't charge these high
Speaker 4: interest rates, they're going to pull back on allowing some
Speaker 4: of the riskiest borrowers to have credit access. A lot
Speaker 4: of people don't don't realize that that, you know, the
Speaker 4: cap wouldn't just mean, you know, suddenly they aren't being
Speaker 4: charged as much on their card balances. It would mean
Speaker 4: that people wouldn't be able to get credit cards and
Speaker 4: wouldn't be able to borrow money in the way that
Speaker 4: they are right now. You know, barroers with lower credit
Speaker 4: scores might not be able to get credit cards if
Speaker 4: the interest rate was capped, and that could, you know,
Speaker 4: theoretically push them into much riskier credit.
Speaker 2: Products, products like payday loans, which can have even higher
Speaker 2: interest rates than credit cards coming up. Capping credit card
Speaker 2: interest rates is an idea that's historically had bipartisan support
Speaker 2: for the relief it could bring borrowers who fall behind
Speaker 2: on payments. Could it go from proposal to policy. Trump's
Speaker 2: initial social media post about capping credit card interest rates
Speaker 2: set a January twentieth deadline forks to comply, but that
Speaker 2: deadline has come and gone. Bloomberg's Claire Balentine says there's
Speaker 2: essentially two ways this could move forward. Trump signs an
Speaker 2: executive order where Congress passes a law. An executive order
Speaker 2: might be subject to legal challenges, but Congress has been
Speaker 2: interested in this idea before.
Speaker 4: I think that's something that perhaps you know Trump and
Speaker 4: other lawmakers are kind of banking on, is that there
Speaker 4: has been support for this from both sides of the aisle.
Speaker 2: In twenty nineteen, Senator Bernie Sanders and Representative Alexandria Ocasio Cortes,
Speaker 2: both Democrats, proposed a fifteen percent cap, and just last year,
Speaker 2: Sanders and Republican Senator Josh Holly teamed up on a
Speaker 2: bipartisan bill proposing a ten percent limit.
Speaker 3: Talk is cheap, but if he's really ready to put
Speaker 3: up and get something done, then let's do it.
Speaker 2: On CNBC last week Democratic Senator Elizabeth Warren said she'd
Speaker 2: work with Trump if he's furious about addressing affordability, including
Speaker 2: making credit card caps a reality.
Speaker 4: There have been really broad bipartisan support over the years.
Speaker 4: You know, that's very different though than actually passing something.
Speaker 2: Why haven't we seen a credit card interest rate cap before?
Speaker 4: One lawmakers can't really agree on, you know, the exact
Speaker 4: specifics of it. And two, you know, there's really powerful
Speaker 4: lobbying from from banks and from the financial services industry
Speaker 4: that is saying that we need to have these high
Speaker 4: interest rates and then if not, you know, then that
Speaker 4: could have negative effects for consumers. So it's it's almost,
Speaker 4: you know, a messaging question. And you know, the big
Speaker 4: banks in the US are really powerful. You know, they
Speaker 4: make a ton of money, they employ a lot of people,
Speaker 4: and so there's there's really strong pushback from the financial industry.
Speaker 2: But Claire says some banks may be considering responding to
Speaker 2: Trump's idea with their own counter offers. Built, a firm
Speaker 2: known for offering rewards on rent and mortgage payments, is
Speaker 2: unveiling three new cards that will have rates capped at
Speaker 2: ten percent for a year. Bloomberg has also reported that
Speaker 2: bank of America and City Group, according to people familiar
Speaker 2: with the matter who asked not to be identified citing
Speaker 2: private information, are both separately considering offering cards with a
Speaker 2: ten percent rate. Representatives for a Bank of America and
Speaker 2: City Group declined to comment. But a selection of cards
Speaker 2: with lower rates isn't the same as a universal cap.
Speaker 4: And I think, you know, right now, they started out
Speaker 4: with Trump coming out with this broad proposal that would
Speaker 4: be really bad for banks, and now banks are sort
Speaker 4: of trying to say, how could we appease the president.
Speaker 4: They're not offering those because they think they're going to
Speaker 4: make the exact same amount of money they are from
Speaker 4: their products that have higher interest rates. But I think
Speaker 4: they are trying to figure out how they can, you know,
Speaker 4: maybe appease Trump and get him back off of this
Speaker 4: broader thread.
Speaker 2: This is the big take from Bloomberg News. I'm Sarah Holder.
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