Donald Trump said during his rally in New York on Wednesday that if elected president he would put a “temporary cap on credit-card interest rates” of “around 10 percent.” He said, “We can’t let them make 25 or 30 percent.”
The vilification of lenders tends to be more Elizabeth Warren’s thing, but Trump is simply all over the place on policy, and it seems as though at every rally he’s liable to freelance a new bad idea that’s hard to take too seriously. The president doesn’t have power to make good on this promise, although Congress could pass a law (it would not actually happen).
Regardless, in the hypothetical world where it was enacted, credit-card lenders would respond in two primary ways:
- Limit credit-card access only to people with very high credit scores. Even having an average credit score would not cut it for an interest rate of only 10 percent on a short-term, unsecured loan.
- Require collateral from less creditworthy borrowers. It would become part of a credit-card application to put up assets as collateral to secure the loan, as is typical for other loans with lower interest rates.
The trade-off for easy access to short-term credit is that it comes with a high interest rate. If you want a lower interest rate, access is going to be more difficult.
Maybe it would be better if access was more difficult. A lot of people get into a lot of credit-card debt that they probably shouldn’t get into. But Trump didn’t acknowledge the trade-off or say he wanted access to be reduced. He portrayed it as a way to punish lenders that would have no downsides for borrowers. That’s not how that would work.