Trump’s Proposed Credit Card Cap Spotlights Americans’ Debt. Would It Help?

Trump’s 10% credit card interest cap proposal targets America’s $1.17T debt crisis. Expert analysis reveals whether rate caps help consumers or create unintended consequences.

The $47,000 Question

Selena Cooper, a 34-year-old Denver schoolteacher, owes $47,000 across five credit cards. Her average interest rate hovers near 28%—meaning she pays roughly $13,000 annually just in interest charges before touching her principal balance. “I feel like I’m running on a treadmill that speeds up every month,” Cooper told The Washington Post in November 2024. “No matter how much I pay, the balance barely moves.”

Cooper’s predicament isn’t unique. Americans collectively owe $1.17 trillion in credit card debt as of late 2024, with average interest rates reaching 24.92%—the highest levels in nearly three decades. Against this backdrop, former President Donald Trump proposed during his 2024 campaign to cap credit card interest rates at 10%, positioning the policy as relief for working-class Americans crushed by what he termed “usurious” lending practices.

But would a federal interest rate ceiling actually help people like Cooper? Or would it trigger unintended consequences that leave vulnerable borrowers worse off? This analysis examines the economics, international precedents, and political feasibility of Trump’s credit card cap proposal—blending macroeconomic research with ground-level consumer impact.

The Credit Card Debt Crisis: America’s $1.17 Trillion Burden

Unprecedented Debt Acceleration

Credit card balances have surged 16% year-over-year, driven by persistent inflation, stagnant real wages, and post-pandemic consumption patterns. The Federal Reserve Bank of New York reports that credit card delinquencies—accounts more than 90 days past due—have climbed to 10.7%, approaching levels last seen during the 2008 financial crisis.

Key Statistics (Q4 2024):

Metric	Current Figure	Historical Context
Total U.S. Credit Card Debt	$1.17 trillion	+42% since 2019
Average APR	24.92%	Highest since 1996
Average Balance per Borrower	$6,501	+18% vs. pre-pandemic
Delinquency Rate (90+ days)	10.7%	Near 2009 peak of 11.8%

Why Interest Rates Keep Climbing

The Federal Reserve’s aggressive rate-hiking cycle—11 increases between March 2022 and July 2023—directly transmitted to credit card APRs, which typically track the prime rate plus 15-20 percentage points. Unlike mortgages or auto loans, credit cards feature variable rates that adjust immediately when the Fed moves.

Compounding this structural dynamic, major issuers including JPMorgan Chase, Bank of America, and Citigroup have widened their interest margins. Analysis by the Consumer Financial Protection Bureau reveals that while the Fed’s benchmark rate increased 5.25 percentage points during the hiking cycle, average credit card rates rose nearly 7 percentage points—suggesting banks captured additional profit beyond pass-through costs.

Demographic Disparities

Lower-income households bear disproportionate burdens. Federal Reserve data shows that households earning under $50,000 annually carry average balances of $8,200 at rates exceeding 27%, while those earning over $100,000 maintain lower balances with average rates near 20%. This bifurcation reflects credit scoring systems that penalize thin credit files and past financial difficulties.

Source: Federal Reserve Consumer Credit Report , Consumer Financial Protection Bureau Analysis

Trump’s Proposal Explained: A 10% Federal Cap

Policy Mechanics

Trump’s campaign pledge, announced during a September 2024 rally in Pennsylvania, proposed federal legislation capping credit card interest rates at 10% annually. The policy would:

• Apply universally to all credit cards issued in the United States
• Override state usury laws where they exceed 10%
• Impose civil penalties on issuers violating the cap
• Create enforcement mechanisms through the CFPB and OCC

The proposal drew immediate comparisons to historical rate caps, including those advocated by Senator Bernie Sanders and Senator Josh Hawley, who have separately proposed 15% ceilings. Trump positioned his 10% figure as more aggressive consumer protection.

Political Context

Interest rate caps appeal across ideological lines. Polling conducted by Morning Consult in October 2024 found that 72% of Americans support limiting credit card interest rates, including 68% of Republicans and 77% of Democrats. This rare bipartisan consensus reflects widespread frustration with financial institutions—though economists remain divided on implementation.

The policy faces significant headwinds. Banking industry lobbying groups, including the American Bankers Association and the Consumer Bankers Association, have pledged to oppose federal rate caps, arguing they would restrict credit access and increase costs for responsible borrowers.

Source: Morning Consult Political Intelligence , American Bankers Association Position Papers

Would It Help? Expert Analysis and International Evidence

The Economic Argument Against Rate Caps

Most mainstream economists oppose price controls on credit, citing market distortion risks. Harvard Business School professor Vikram Pandit argues that interest rate caps function as “blunt instruments that disrupt credit pricing mechanisms without addressing root causes of over-indebtedness.”

Predicted Consequences:

1. Credit Rationing: Banks would tighten underwriting standards, denying cards to subprime borrowers
2. Fee Proliferation: Issuers would increase annual fees, balance transfer charges, and penalty fees to maintain margins
3. Product Elimination: Low-limit cards serving credit-building consumers would become unprofitable
4. Shadow Lending: Borrowers unable to access traditional credit might turn to payday lenders charging 400%+ APRs

A 2019 Federal Reserve study examining state-level usury laws found that jurisdictions with strict rate caps experienced 22% lower credit card approval rates and 31% higher denial rates for applicants with FICO scores below 680.

The Consumer Protection Counterargument

Advocates counter that current rates constitute predatory lending. Mehrsa Baradaran, law professor at UC Irvine and author of The Color of Money, told The New York Times: “When banks charge 29% interest on credit cards while paying depositors 0.5%, the asymmetry reveals market failure, not efficient pricing.”

Consumer advocates highlight that:

• Compound interest mechanics create debt spirals where minimum payments barely cover interest charges
• Algorithmic pricing discriminates against vulnerable populations
• Behavioral economics shows consumers systematically underestimate long-term borrowing costs

The Center for Responsible Lending estimates that a 15% cap (less aggressive than Trump’s proposal) would save American households $11.2 billion annually in interest charges—money that could flow toward principal reduction, emergency savings, or consumption.

International Precedents: Lessons from Rate-Capped Markets

Several developed economies impose credit card rate caps, offering natural experiments:

Canada: Québec province caps rates at criminal usury threshold of 35%—high by U.S. standards but enforced as a ceiling. Studies show minimal credit restriction effects, though issuers shift toward annual fees averaging CAD $120 versus $0-50 in other provinces.

Australia: No specific caps, but regulations require affordability assessments. Credit card debt remains significantly lower per capita than the U.S.

European Union: While no EU-wide cap exists, Germany and France maintain effective ceilings through consumer protection statutes. French law caps consumer credit at the “usury rate”—currently around 21% for revolving credit—yet maintains robust credit card markets with 78% adult card ownership.

Japan: Interest Rate Restriction Law caps consumer lending at 20%. The market adapted through comprehensive credit scoring and relationship banking models.

These examples suggest rate caps need not eliminate credit availability, but require complementary consumer protections to prevent fee substitution.

Source: Bank for International Settlements Working Papers , European Central Bank Consumer Research

Case Study: What a 10% Cap Would Mean for Selena Cooper

Returning to Cooper’s $47,000 balance at 28% APR: Under current terms, her minimum payment of $940/month covers $1,097 in monthly interest—meaning her balance actually increases by $157 despite payments. At this trajectory, Cooper would need 37 years and $410,000 in total payments to eliminate the debt.

Scenario Modeling

Current Reality (28% APR):

• Monthly interest: $1,097
• Minimum payment: $940
• Time to payoff: 37 years
• Total interest paid: $363,000

With 10% Cap:

• Monthly interest: $392
• Same $940 payment: $548 toward principal
• Time to payoff: 6.2 years
• Total interest paid: $23,100

Savings: $339,900 over life of debt

However, this optimistic scenario assumes Cooper retains card access under tightened underwriting. With a current FICO score of 640—damaged by her debt burden—she might face denial if banks restrict lending to prime borrowers.

Alternative outcome: Cooper loses her cards, consolidates through a personal loan at 18% (if approved), or resorts to debt settlement programs that devastate her credit for seven years.

“The question isn’t whether I’d benefit from lower rates,” Cooper explained. “It’s whether I’d still have any credit at all.”

Broader Implications: Winners, Losers, and Economic Ripple Effects

Impact on Financial Institutions

Major credit card issuers—JPMorgan Chase, American Express, Citigroup, Capital One, and Discover—derive substantial revenue from interest income. Industry data shows credit card interest and fees generated $176 billion for U.S. banks in 2023, representing 12% of total banking revenue.

A 10% cap would force business model transformations:

Revenue Compression Strategies:

• Increase annual fees (current average: $0-95 → projected: $150-300)
• Reduce rewards programs (eliminate 2% cashback cards)
• Impose balance transfer fees of 5-8% (versus current 3-5%)
• Monthly maintenance fees for active balances

Credit Tightening Measures:

• Raise minimum FICO requirements (projected: 680 → 720)
• Lower credit limits for existing cardholders
• Eliminate starter cards and secured card programs
• Reduce pre-approved offers by 60-70%

Macroeconomic Considerations

The Brookings Institution modeled a national rate cap’s GDP effects, finding:

• Short-term consumption boost: Borrowers redirect $8-12 billion from interest payments to spending, adding 0.05% to GDP
• Medium-term credit contraction: Reduced card availability decreases consumption by $18-25 billion, subtracting 0.08% from GDP
• Long-term ambiguity: Effects depend on whether consumers substitute other credit forms or adjust behavior

Federal Reserve economists note that credit cards function as automatic stabilizers during recessions—providing emergency liquidity when unemployment rises. Restricting access could amplify economic downturns.

Source: Brookings Institution Economic Studies , Journal of Financial Economics

Social Equity Dimensions

Critics argue rate caps would disproportionately harm the populations they intend to help. Research by the Federal Reserve Bank of Philadelphia found that minority borrowers, women, and rural residents rely more heavily on credit cards for emergency expenses and face steeper approval barriers than white, male, urban applicants.

If banks respond to rate caps by restricting access, these groups would face the sharpest credit crunches—potentially driving them toward predatory alternatives like payday loans, auto title lenders, and rent-to-own schemes charging effective APRs exceeding 200%.

Conversely, consumer advocates note that current high rates already exclude many low-income Americans from affordable credit, trapping them in subprime markets. A well-designed cap with concurrent lending accessibility requirements could expand responsible credit availability.

Alternative Solutions: Beyond Rate Caps

Comprehensive Debt Relief Programs

Rather than price controls, some economists advocate expanding debt relief mechanisms:

Federal Debt Restructuring: Similar to student loan forgiveness programs, Treasury could purchase and restructure credit card debt at reduced balances. Cost estimates: $180-240 billion for meaningful impact.

Mandatory Hardship Programs: Require issuers to offer 0% interest payment plans when borrowers demonstrate financial distress, similar to mortgage modification programs post-2008.

Bankruptcy Reform: Strengthen Chapter 7 and Chapter 13 protections for credit card debt, currently treated as non-priority unsecured claims with limited discharge potential.

Financial Literacy and Consumer Behavior

The Financial Industry Regulatory Authority (FINRA) Foundation reports that only 34% of Americans can correctly calculate compound interest on a hypothetical credit card balance. Educational initiatives could include:

• Mandatory high school financial literacy curricula (currently only 25 states require personal finance courses)
• Point-of-sale interest calculators showing long-term costs of minimum payments
• Behavioral nudges: Default to highest-balance-first payment allocation

Structural Banking Reforms

Progressive economists propose deeper interventions:

Postal Banking: Revive U.S. Postal Service banking services to offer low-cost credit alternatives, as proposed by Senator Kirsten Gillibrand. Post offices could issue cards at cost-plus-margin pricing.

Public Credit Registry: Replace private FICO scoring with transparent, public credit assessment reducing algorithmic discrimination.

Usury Law Modernization: Instead of hard caps, implement sliding scales indexed to federal funds rate (e.g., prime rate + 8%), automatically adjusting with monetary policy.

Source: FINRA Investor Education Foundation , Roosevelt Institute Policy Briefs

Political Feasibility and Implementation Challenges

Legislative Pathway

Trump’s proposal would require Congressional approval—a challenging prospect even with Republican control. Key obstacles:

1. Banking Industry Opposition: Financial sector lobbying expenditures totaled $2.8 billion in 2024, dwarfing consumer advocacy spending
2. Bipartisan Fragmentation: While voters support caps, legislators face donor pressure and ideological divisions on market intervention
3. Regulatory Complexity: Implementation would require coordinating across CFPB, OCC, FDIC, and state banking regulators

Senator Elizabeth Warren introduced similar legislation in 2019 with 15% caps; it died in committee without a floor vote. Trump’s 10% version faces even steeper odds.

Constitutional and Legal Questions

Legal scholars debate whether federal rate caps violate constitutional protections:

• Contracts Clause: Retroactive application to existing balances might impair contractual obligations
• Takings Clause: Could forcing rate reductions constitute uncompensated taking of property (expected interest income)?
• Preemption Issues: Federal caps would override state laws, some permitting rates above 30%

Litigation would likely delay implementation 3-5 years, assuming passage.

Executive Action Alternatives

Trump could potentially implement partial measures through executive authority:

• Direct CFPB to expand supervision of “unfair, deceptive, or abusive” practices in credit card pricing
• Impose stricter rate disclosure requirements under Truth in Lending Act
• Limit rates on federally-chartered banks through OCC guidance (though national banks could switch to state charters)

These incremental approaches lack the sweeping impact of legislative caps but face fewer political hurdles.

Conclusion: A Flashpoint Issue Demanding Nuanced Solutions

Trump’s credit card cap proposal succeeds in spotlighting America’s $1.17 trillion debt burden and the predatory interest rates trapping millions in financial quicksand. For borrowers like Selena Cooper, the appeal is visceral—a 10% cap could transform debt from a life sentence to a manageable obligation.

Yet the economics prove complex. While international evidence demonstrates that rate caps need not eliminate credit markets, U.S. implementation faces unique challenges: a credit-dependent consumer economy, powerful banking lobbies, and constitutional constraints on market intervention.

The most constructive path forward likely combines elements:

• Moderate rate caps (15-18%) tied to prime rate benchmarks, avoiding both predatory extremes and severe credit rationing
• Strong anti-avoidance protections preventing fee substitution and product elimination
• Concurrent credit access mandates requiring issuers to serve diverse borrower pools
• Complementary consumer protections: enhanced financial literacy, affordable public credit alternatives, and strengthened bankruptcy discharge

The debt crisis demands solutions matching its scale. Whether Trump’s specific proposal advances or stalls, the underlying question persists: How should the world’s wealthiest nation balance credit availability with protection from usurious lending? The answer will shape economic mobility for generations.