President Donald Trump's recent proposal to cap credit card interest rates at 10% for one year, starting January 20, is generating both support and opposition. The proposal, announced in a social media post on January 9, revisits a campaign pledge from Trump's 2024 campaign, framed as an effort to address affordability concerns.

Supporters of the proposed cap contend that it could provide relief to households burdened by high credit card interest rates, which currently average above 20%. However, economists and banking executives are raising concerns about the potential ramifications of such a policy.

A key point of contention is the need for Congressional approval, given that implementing the cap would require legislative action. Critics also suggest that the cap could lead to unintended consequences, such as banks becoming more hesitant to extend credit, particularly to higher-risk borrowers. This, in turn, could negatively impact consumer spending and overall economic growth.

Brett House, an economics professor at Columbia Business School, expressed skepticism about the proposal's effectiveness. "An artificial cap on credit card interest rates is likely to backfire on the White House by making credit less accessible to the cash-strapped households that most need it," House stated.

The proposal became a significant topic of discussion during recent earnings calls for major American banks. Executives generally agreed that a 10% cap would likely restrict access to credit for individuals with lower credit scores and could have detrimental effects on consumer spending and economic expansion. The banking sector fears the cap could squeeze profit margins and force them to reassess their risk models.

The debate surrounding the proposed interest rate cap highlights the complex interplay between consumer protection, economic policy, and the financial industry. As the proposal moves forward, it is expected to face scrutiny from lawmakers, economists, and various stakeholders who will weigh its potential benefits against its possible drawbacks. The next steps involve assessing the likelihood of Congressional support and further analysis of the potential economic impacts.