Stagger credit card interest rate cap implementation or risk leaving consumers cashless, urges ex-World Bank governor
President Trump must stagger the implementation of credit card interest rate caps, or risk leaving consumers cashless, urges ex-World Bank governor Yerbol Orynbayev.
Orynbayev’s intervention follows President Trump’s pledge to cap credit card interest rates at 10%, which has generated fury across Wall Street.
Orynbayev recognizes that, given the average credit card interest rate is now 13% higher than it was a decade ago, this is an issue that needs addressing – but he argues a steadier approach, that listens to market signals, is required.
When caps are applied out of the blue, without taking market forces into consideration, they make lending to higher-risk or underserved borrowers unviable for banks. Rather than making credit cheaper, Orynbayev argues that Trump’s plans will leave the most vulnerable without a vital source of cash and exacerbate their financial struggles. He also warns that it could catalyse the growth of the largely unregulated shadow banking sector, threatening the US economy.
If caps are to be implemented, Orynbayev advocates for a gradual strategy that starts at 25%, moves to 20%, 15%, and then settles at 10% over no less than five years. This timeline will allow consumers to assess their options and adjust spending habits, while giving banks the space to monitor customer behaviour shifts, reassess their risk management processes, and tighten lending criteria accordingly. He adds that, even with this approach, any decision to lower caps must take prevailing market rates into account.
Without a slow, staggered approach that is based on market analysis, Orynbayev warns that the president will hurt, rather than help, hundreds of thousands of consumers.
Yerbol Orynbayev, ex-World Bank governor, said: “The president is right that predatory credit card providers must be kept in check, but while his motivations are sound, his current plans will end up punishing the very consumers he is trying to help.
“The chance of banks continuing to issue credit cards at the current rate – when there’s a possibility they’ll lose more money from defaults than they can make back through 10% interest rate payments – is close to zero. It’s much more likely that they’ll reduce approvals and impose stricter criteria, leaving those who desperately need access to credit out in the cold.
“Don’t get me wrong, we need to help Americans get out of the debt doom loop. But to make rate caps count, we have to roll them out slowly. An immediate 10% blanket limit will do far more harm than good – Trump must not get his wish.”