Former President Donald Trump has proposed a one-year cap on credit card interest rates at 10%, a move that has drawn sharp criticism from economists and political figures alike. In a post on X, economist Peter Schiff called the proposal “unconstitutional” and likened it to “socialist price control.” Schiff noted that this is a similar stance to the one Trump took against former Vice President Kamala Harris, who faced backlash for proposing price controls on grocery items during her campaign.
Schiff cautioned that the interest rate cap could lead to a credit crunch, potentially disrupting consumer lending markets. He argued that lenders might respond by cutting credit limits and closing accounts for higher-risk borrowers. Trump aims to have credit card companies implement this cap by January 20, 2026, marking the first anniversary of his second term, should he win re-election.
Concerns from Financial Experts
The proposal has raised alarms among financial experts, including billionaire hedge fund manager and Trump ally Bill Ackman. Ackman described the initiative as a “mistake,” echoing concerns that credit card companies may cancel millions of accounts if they cannot secure adequate returns. This could force some borrowers to seek out less secure lending options, such as loan sharks.
Senator Elizabeth Warren (D-Mass.) also criticized Trump’s proposal, stating, “Begging credit card companies to play nice is a joke.” She accused Trump of not genuinely caring about affordability for American consumers, referencing his administration’s efforts to weaken the Consumer Financial Protection Bureau, an agency designed to protect borrowers from predatory practices.
Despite the controversy surrounding Trump’s announcement, the iShares U.S. Financial Services ETF (NYSE:IYG), which tracks several leading U.S. credit card and financial services companies, appeared unaffected. On the day of the announcement, the fund dipped by 0.21%, closing at $94.32.
Trump’s interest rate cap proposal is part of a broader wave of populist measures he has introduced recently. This initiative follows a plan to prohibit institutional buyers from purchasing single-family homes and a $200 billion initiative aimed at lowering mortgage rates for homeowners. Critics argue that these measures could have unintended consequences, impacting the stability of financial markets and consumer credit access.
The ongoing debate surrounding these proposals highlights the tension between populist economic strategies and traditional financial principles, sparking discussions on the potential implications for borrowers and lenders alike.
