Analysts say Trump's credit cap would "dramatically" cut lending

Fourth quarter earnings season gets underway this week, starting with several major banks.

JP Morgan Chase will release results Tuesday. On Wednesday, it’s Bank of America, Wells Fargo, and Citigroup. And one thing bank CEOs are sure to be asked about is President Donald Trump’s call to cap credit card rates at 10% — about half the current average rate.

Analysts don’t know what legal authority – if any – Trump can use to compel banks to cap rates at 10%. But they do think there will be negative consequences for consumers, said Ted Rossman, senior industry analyst with Bankrate.

“The problem is that it just wouldn’t be profitable for banks, and they would cut back on lending dramatically,” Rossman said.

That’s because credit card debt is inherently risky. Credit card rates are three, four or five times higher than a lot of other financial products because they’re not secured to an asset, like a house or a car, Rossman said. Some people don’t pay it back.

The Electronic Payments Coalition said Trump’s demand could leave anyone with a credit score below 740 effectively without credit card access. Consumer spending could slow and hurt the economy.

Lauren Saunders, associate director of the National Consumer Law Center, said she often hears the “access to credit” argument.

“The credit card companies make billions of dollars in profits off of credit cards, and they certainly have room to charge lower rates than they do today,” she said.

Rossman said those companies have room for maybe one or two percentage points lower than current rates. But banks won’t go as low as 10%, he said.