Selena Cooper is a single mother, nonprofit consultant, and an aspiring photographer. Sadly though, she’s gotten into a pickle, accumulating $6,000 on her three credit cards. Her experience sheds light on an ongoing crisis affecting Americans. In fact, recent data shows that Americans’ credit card debt has just recently crossed the $1 trillion mark. The urgency of this challenge has only been exacerbated by rapidly rising interest rates, which have millions of working Americans still reeling from heightened financial burdens.
Cooper’s problems really began when Capital One and American Express jacked up her interest rates. They claimed they needed to take this drastic step because she had been paying late. Her Capital One card’s interest rate suddenly shot up to 16%. At the same time, her American Express card jumped from 10% to 18%. She’s using her Discover card just to pay for childcare for her two-year-old daughter while she looks for work.
To counter this escalating debt crisis, U.S. president Donald Trump rolled out a radical proposal. He proposes an emergency credit card interest rate cap of 10% for one year, beginning on January 20th. Though the proposal has had strong bipartisan support, it has floated in and out of legislative talks for years. Experts warn that such a cap could lead to negative outcomes for borrowers.
According to the Consumer Financial Protection Bureau, Americans are projected to incur $160 billion in interest charges in 2024 alone. Today, over a third of adults still regularly maintain a balance. As of this past November, average interest rates have reached nearly 22%, a stark rise from only 13% a mere 10 years ago. This abrupt increase in rates has deeply impacted borrowers, many of whom are struggling more than ever with their debt.
Her testimony brought fire and passion to the hearing. She welcomed the prospect of a cap helping her cope with smaller bills. She argued that it wouldn’t address her hefty credit card debt.
“It would help a little bit, but it’s still not going to get me out of debt,” she stated.
Whether the proposed cap would be effective is hotly disputed. Now, some industry experts are beginning to raise alarm. They caution that banks may increase lending standards for those with lower credit scores, deeming them as higher risk borrowers.
This concern aligns with warnings from Citigroup’s chief executive Jane Fraser, who highlighted that a cap could have a “severe impact on access to credit and on consumer spending across the country.” Meanwhile, banks are anxious to make up for their anticipated revenue shortfall due to diminished interest rates. To achieve this, they may increase annual fees or advance late fees.
Some advocates understand the cap to be a critical feature. In their view, even with its downsides, it puts the needs of everyday consumers ahead of big business interests. Morgan, one of the borrowers facing crippling debt who spoke with the Times, explained how momentous the proposal was.
“People will lose access to credit on a very, very extensive and broad basis, especially the people who need it the most.”
She, too, reiterated Cooper’s call on leaders to get real about how little relief it can offer.
The legal battle over the proposed cap on payday lender interest is symbolic of a critical national debate between economic policy and consumer protection safeguards. Senator Josh Hawley (R-MO) and Senator Bernie Sanders (I-VT) introduced a bill last year promoting similar requirements. Still, even with this sort of bipartisan support there’s a lot of reason to be skeptical about whether this initiative will actually improve things for consumers.
“It’s one of the few things he’s done that prioritizes people over businesses,” she said.
Perhaps no one was more pointed in commenting about the lack of significant action warranted from the administration than Elizabeth Warren.
“I’m losing sleep over the $6,700, but I have a little wiggle room to be able to do that because once I get a job, I can pay it off,” Morgan added.
Industry experts, including Benedict Guttman-Kenney, who has researched the potential measure at length, have serious doubts about the proposed measure’s effectiveness.
With a battle to cap credit card interest rates now underway in Congress, millions of consumers are still stuck in the crossfire. Susan Schmidt wondered at the wider meaning of increasing debt levels.
“If he really wants to get something done, including capping credit card interest rates or lowering housing costs, he would use his leverage and pick up the phone,” she asserted.
Industry analysts like Benedict Guttman-Kenney also express concerns about the efficacy of the proposed measure.
“It’s not clear that people are going to be better off,” he stated.
As discussions about capping credit card interest rates continue, many consumers remain caught in the middle. Susan Schmidt observed the broader implications of rising debt levels.
“It does show that consumers are feeling pinched; they’re going to continue to feel pinched,” she noted.
Mike Johnson emphasized the complexity of addressing such financial issues.
“It’s something that we’ve got to be very deliberate about,” he said.