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Financial expert on ‘serious’ consequences of retail credit cards: ‘So many strings attached’
JPMorgan Chief Financial Officer Jeremy Barnum warned Tuesday that the chairman that of Donald Trump Pushes to cap credit card interest rates at 10% could harm the economy as a whole and reduce access to credit.
“What’s actually going to happen is that the delivery of the service is going to change dramatically. Specifically, people will lose access to credit, very, very extensively and very broadly, particularly those who need it,” Barnum said on a call tied to the bank’s fourth-quarter earnings release.
Barnum said this could create a “very negative consequence for consumers and, frankly, probably also a negative consequence for the economy as a whole.”
TRUMP’S CREDIT CARD INTEREST RATE CAP COULD HIND ACCESS FOR MILLIONS OF AMERICANS: REPORT
He also noted that this would also pose a “significant” challenge to JPMorgan’s credit card business.
A customer uses a credit card in a store. (Robert Nickelsberg/Getty Images)
“I think it should be obvious that it would be bad for us as well. I’m not going to get into quantification, but strictly speaking, it’s an important business for us. It’s a very competitive business, but we wouldn’t be in it if it wasn’t good business for us,” he said.
Trump calls for 10% 1-year cap on credit card interest rates
Banks are essentially warning consumers that with the rate cap, they “would be less willing to extend credit cards to anyone who doesn’t have good credit and that the rewards people love so much would be significantly reduced,” according to Matt Schulz, LendingTree’s chief consumer finance analyst, who noted that this could ultimately lead to a decrease in consumer spending, which could hurt the economy.
Barnum’s comments echo earlier warnings that Trump’s call for a 10% cap on credit card interest rates could impact access to credit cards for many American consumers, while also impacting small businesses.
On Friday, Trump said he wanted to impose a 10% tax. capping credit card interest rates for one year starting January 20, saying it wants to prevent consumers from being “ripped off” by credit card issuers with interest rates that can exceed 20% for certain borrowers.
President Donald Trump has called for a one-year cap on credit card interest rates, blaming the high costs on the Biden administration. (Brent Lewin/Bloomberg via Getty Images)
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The president’s proposal follows the introduction of a bill last year by Sens. Bernie Sanders, I-Vt., and Josh Hawley, R-Mo., that would cap credit card APRs at 10 percent.
But Richard Hunt, executive chairman of the Electronic Payments Coalition (EPC), told reporters that EPC’s analysis of a 10% credit card cap found that almost all credit card accounts associated with a credit score below 740 would be closed or severely restricted if a 10% interest rate cap was implemented.
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People walk past the JPMorgan Chase headquarters in Manhattan on May 20, 2015. (Reuters/Mike Segar/File)
This would impact 175 to 190 million U.S. cardholders who would lose access to their credit cards, primarily low and middle income households. Data from the Federal Reserve Bank of New York reveals that the average credit score for low-income Americans was 658, while it was 735 for middle-income households.
Schulz told FOX Business that it’s still not entirely clear how this will all play out. He pointed to the 18% rate cap on federal credit union credit cards, and they still offer rewards as an example.
“They’re not as lucrative as those found on an Amex Platinum or Chase Sapphire Reserve, but they’re still important. Of course, the story would probably be different if the credit union cap was 10%, but credit unions are still proof that rewards and rate caps can coexist successfully,” he said.
However, he believes 0% balance transfer credit card offers would disappear if the rate cap were implemented.
“Banks just wouldn’t do it be prepared to take these kinds of risks under a restrictive rate cap, particularly at 10%. That would be a big deal, although the interest paid with a 10% cap rate would be so much lower than what people are facing now that it would make these 0% deals less important,” he added.
The reason politicians continue to propose them, even though they often get nowhere, is because they are very popular, even though they limit access to credit and their rewards can be significantly reduced.
A 2024 LendingTree survey showed that three in four credit card holders support these limits.
Eric Revell of FOX Business contributed to this report.
