Selena Cooper, a mother of 3 in Los Angeles, recently called up scared and overwhelmed by $6,700 in credit card debt. Recently, her interest rates surged, with her Capital One card’s rate doubling to 16% and her American Express card’s rate climbing from 10% to an alarming 18%. In addition to her, Morgan, a current college student, has gone on to rack up $6,000 in credit card debt on three separate cards. Credit card debt in the United States has now gone over $1 trillion. With interest rates increasing overall, lawmakers across the country are working to introduce solutions that will help to mitigate costs passed onto consumers.
In fact, starting in November 2023, credit card interest rates shot up to an average of 22%! This is a stark increase from the 13% rate just a decade ago. This trend has resulted in 37% of American adults currently carrying a balance on their credit cards. In response to this growing crisis, Senators Josh Hawley and Bernie Sanders introduced a bill that seeks to cap credit card interest rates at 10%. To add to the interestingness, former President Donald Trump has made his own similar proposal, calling for a one-year limit starting on January 20.
Cooper expressed cautious optimism about the proposed cap, stating, “A 10% cap would help a little bit, but it’s still not going to get me out of debt.” As with so many Americans like her, the growing interest charges have become an unbearable source of anxiety.
Morgan shares a similar sentiment, revealing, “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.” She views the proposed cap as a potentially positive step: “It’s one of the few things he’s done that prioritizes people over businesses.”
The fiscal reality is complicated. Experts caution that even though capping interest rates might sound like a good deal, it could encourage banks to adopt new policies that hurt consumers. According to Brian Shearer, “To continue lending, banks would have to reduce rewards to some extent, especially to people with lower FICO scores.” Cappelli notes that consumers stand to lose valuable rewards. For most people, savings from reduced interest rates would more than offset those losses.
Experts aren’t in consensus that a cap is the answer. Susan Schmidt cautioned that “a 10% cap may not be the right solution because the people that are already in trouble, that’s not necessarily going to help them.” She focused in on the fact that consumers are feeling this financial crunch like never before. Without systemic, long-term solutions, this pressure will continue to build.
In all these ways, the financial impact of soaring dollar interest costs are pronounced. Banks are on track to make nearly $160 billion off of interest charges in 2024 alone. This burgeoning revenue stream has provoked concerns and questions among many analysts. They are worried that banks may start restricting loans to people with poorer credit ratings or raising charges if the cost of borrowing has a possible upper bound.
Benedict Guttman-Kenney expressed skepticism about the overall effectiveness of such measures: “It’s not clear that people are going to be better off.” He says the cap is a good move but will provide only temporary relief for some borrowers. It does little to address the root causes of escalating debt levels and surging living costs.
There is an alarming urgency around the issue. With more Americans sinking under the weight of their debt, lawmakers such as Elizabeth Warren are calling for stronger reforms. Warren stated, “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.”