President Donald Trump has a new plan he said will help consumers. The president wants to cap credit card interest rates at 10% for one year.
As noted by CBS News, that’s a huge decline from the current average in the United States of around 20%. While some analysts said the move could save some cardholders hundreds of dollars in interest payments, others warned credit card companies could respond by putting limits on borrowing or tightening lending, per CBS News.
Here’s what some financial experts told GOBankingRates may happen with such a 10% cap.
A Hit to Borrowers
For starters, according to Marcus Sturdivant Sr., managing member of The ABC Squared, big issues with the timing, enforcement and implied price controls are coming from both sides of the aisle and Wall Street bankers. He added that new borrowers and people with limited history could struggle to obtain credit from lenders.
“We would see the requirements for credit tighten and potentially a lot of Americans would be disenfranchised from their credit cards or not be able to obtain a new credit card,” he said. “And for the borrowers, this will hit the hardest. They are the Americans using their cards, living paycheck to paycheck — the majority of Americans live paycheck to paycheck — and carrying a balance at the end of the month. If you pay your card off every month, the interest rate is a moot point.”
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A Problem for Reward Members
Those who use credit cards to maximize rewards may also feel the impact.
“This will impact Americans with higher net worths, paying off their balances every month and using those rewards and perks differently,” Sturdivant said. “The perks will drastically decrease or go away.”
A Possibility of More Debt
Per Melanie Musson, a finance expert with Quote.com, a 10% credit card cap may not be optimal for consumers.
She explained that it could lead to higher debt because the incentive to avoid extremely high interest rates would be gone, and people might feel borrowing will have less impact.
An Impact on Fee Payers
Consumers could also see fees on their credit cards increase as a result of this change.
“One way a credit card company could earn more money, which would be scary for everyone, would be to increase service fees,” Musson said. “Already, stores either absorb the 3% credit card fee or pass it on to card users. If those fees increased, every shopper could end up paying more for purchases.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Experts Warn Consumers Could Pay More If 10% Credit Card Cap Limits Rewards and Raises Other Fees
