September 27, 2024 | 10% Cap on Credit Card Fees?

APR fees on credit cards have never been higher, reaching an average of 24.92% as of September 2024 in the United States. In fact, credit card interest rates have not been beneath 10% since the early 90s. Consumer debt has never been higher and countless households have fallen into a snowball situation where they simply accumulate more debt in a failed attempt to pay off the old. Donald Trump has offered the most extreme solution presented by a politician thus far – capping credit card interest fees at 10%.

Bernie Sanders once proposed a 15% cap to the shock of many. Biden attempted to implement an $8 cap on late fees alone but was prevented from doing so. Banks have continued raising their fees and interest rates as more households fall behind.

Prior to the pandemic, Americans paid $120 billion annually in credit card interest fees from 2018 to 2020, amounting to $1,000 annually per household. In 2022, consumers were paying $105 billion in interest as it has become the main cost behind having a credit card. Rates on credit cards have doubled in a mere decade from 12.9% in 2013 to 22.8% in 2023.

The Federal Reserve Bank of New York released data in August indicating that American credit card debt reached a new high of $1.14 trillion. A separate report from TransUnion has found that the average American is carrying $6,329 in personal credit card debt, a 4.8% uptick from last year. Americans have amassed over $250 billion in the past two years alone amid record inflation. Bankrate reported that 46% of cardholders cannot pay off their monthly credit card payments, up 7% from last year.

Banks are naturally against this cap. Those in disagreement believe banks will be reluctant to lend and tighten their requirements. To some extent, that may not be a negative. Living within your means has completely changed under Bidenomics and everyone is adjusting to the new cost of living. In the meantime, people need to catch up to get back on their feet before the debt vortex sucks them into a hole that becomes nearly impossible to climb out of.

Consumers have been forced to pay for basic necessities on credit due to the astounding rise in prices for basics like energy, food, and rent. “While working Americans catch up, we’re going to put a temporary cap on credit-card interest rates,” Trump said at the rally in New York. “We can’t let them make 25 and 30 percent.” Now, Trump is proposing a temporary cap. We permit countless stimulus packages that never stimulate the economy and hand out funds recklessly to help those on hard times. Yet, no one has proposed temporarily capping credit card fees to give consumers time to pay off their debts. The banks are still profiting, albeit less.

No one will profit if consumers default on their personal debts and they are sent to collectors never to be paid. This solution could give households adequate time to adjust their personal finance strategies.

Martin Armstrong September 27th, 2024

Posted In: Armstrong Economics

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