Yerbol Orynbayev, former Governor of the World Bank, discusses Trump’s plans to cap credit card interest rates and the potential outcomes.
A few weeks ago, President Trump made headlines with outlandish plans to cap credit card interest rates at 10% for a year. It’s a proposal that appears to have been cooked up with very little consideration of external market factors, and I worry it will hurt the very consumers the President argues he is protecting.
Why? Well, because the first thing we’d see is a knee-jerk reaction from the banks responsible for the greatest share of consumer lending. They’d immediately pull back, issuing fewer new credit cards and stopping the flow of loans that everyday Americans have come to depend on.
You can’t really blame them for this. Banks have a duty to assess risk when lending to any individual or organisation. At the end of the day, it would be wrong to lend to an individual when there’s a high chance they could default and negatively affect the bank’s balance sheet. Unless, that is, you can rely on interest rate payments: a back-up plan that helps you recoup the funds.
It’s exactly this balance – risk versus reward – that such a policy throws off. If the interest rate is capped at 10%, then lending to those with the poorest credit history, and who carry the greatest risk, is no longer viable. Banks would be opening themselves up to big losses that they cannot hope to claw back on 10% interest rate payments – and why would they do that?
The potential effects of credit card rate caps in the US
The net effect is that consumers, particularly those in the most difficult financial circumstances, would be left with reduced access to credit. And considering that as many as 40% of households rely on credit to pay the bills, the implications would be enormous. Thousands of Americans would be left worse off.
I can completely understand why President Trump wants to combat predatory lending. The average interest rate was 13% a decade ago and has since jumped to a huge 22%. Too many consumers are trapped in a debt doom loop and huge interest rate bills are a big part of what keeps them there.
But while I agree that steps to address consumers’ financial health are necessary, these plans are rushed, drastic, and simply not the right way to go about it.
Rate caps can be a useful tool when implemented thoughtfully. Still, they must be based on broader market forces such as supply and demand, inflation expectations, operational costs for banks, and the underlying risk of borrowers.
And while this might not be our first time hearing about Trump’s 10% cap pledge – it was also part of his 2024 election campaign – we have seen no evidence of such thoughtfulness. We’ve seen no policy detail, no justification for why now is the right time to introduce a year-long cap, and no assessment of the economic ripple effects that could follow its implementation.
These ripple effects would likely include a significant drop in household spending as consumers lose access to the credit they have relied upon for big purchases like cars, appliances, or phones. We’d face falling revenues across smaller and mid-size businesses, and, in all likelihood, the growth of shadow finance options as formal, regulated lenders pull up the drawbridge and consumers are forced to seek alternatives.
The alternative path to Trump’s 10% credit card rate cap
It doesn’t have to be this way, though. I do believe this Administration could implement rate caps that help consumers without cutting off their access to credit or triggering catastrophic economic side effects, so long as it takes a steadier, staggered approach that is underpinned by market analysis.
You could, for example, initially introduce a 25% cap to curtail those lenders with the highest, most predatory rates, and steadily work your way down to 20%, 15%, and then 10% over the space of five or so years – on the condition that market forces allow.
This would give consumers time to adjust their spending habits and plan their finances properly, and allow banks to reassess risk management processes, adjust lending criteria, and monitor shifts in customer spending patterns. With plenty of forewarning, all parties could manage the transition in a way that isn’t rushed or panicked, and the chances of the policy having a positive impact over the long term would be far greater.
I have a feeling Trump’s 10% cap plan will rear its head in the near future – and when it does, I hope we see a softer, adjusted version that results in worthwhile change without fundamentally altering or threatening our financial system.
Without a shift in approach, I truly believe that Trump won’t stop consumers from being ‘ripped off’ by credit card companies. Instead, he’ll leave them completely out in the cold and set off economic ramifications that could ripple out for decades to come.
About Yerbol Orynbayev
Yerbol Orynbayev is an independent financial consultant supporting primarily community and regional banks across the US. Prior to his consultancy career, Orynbayev served as the Deputy Prime Minister of Kazakhstan from 2007-2013 and Aide to the President on economic policy from 2013-2015. He also worked as the Governor of the World Bank on behalf of Kazakhstan and helped steer the nation out of the 2008 Financial Crisis. You can follow updates from him on LinkedIn and X.
