Financial expert on ‘serious’ consequences for retail credit cards: ‘So many obligations’
JPMorgan CFO Jeremy Barnum warned Tuesday that President Donald Trump’s attempt to cap credit card rates at 10% could hurt the broader economy and limit access to credit.
“What’s actually going to happen is that service delivery is going to change dramatically. In particular, people are going to lose access to credit on a very, very extensive and broad basis, especially the people who need it,” Barnum said on a call related to the bank’s fourth-quarter earnings release.
Barnum said this could have a “severe negative impact on consumers and, frankly, probably a negative impact on the economy as a whole.”
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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 clear that that would be bad for us as well. I’m not going to get into quantification, but in a narrow sense this is a big business for us. It’s a very competitive business, but we wouldn’t be in it if it wasn’t a good business for us,” he said.
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Banks are essentially warning consumers that with the interest rate cap “they would be less willing to give credit cards to someone who doesn’t have great credit and the rewards people love would be dramatically reduced,” said LendingTree chief consumer finance analyst Matt Schulz, who noted that it could ultimately lead to less 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 credit card access for many U.S. consumers, as well as small businesses.
On Friday, Trump stated that he wants to impose a 10% fine. cap on credit card interest rates for one year from January 20, and says he wants to prevent consumers from being “ripped off” by credit card issuers with interest rates that can top 20% for some borrowers.
President Donald Trump called for a one-year cap on credit card interest rates, blaming the Biden administration for the high costs. (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%.
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 every credit card account with a credit score below 740 would be closed or severely restricted if a 10% interest rate cap were implemented.
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People pass by the JPMorgan Chase headquarters in Manhattan, May 20, 2015. (Reuters/Mike Segar/File)
That would impact 175 million to 190 million U.S. cardholders who would lose access to their credit cards, especially lower and middle incomes households. Data from the Federal Reserve Bank of New York shows that the average credit score for low-income Americans is 658, while for middle-income households it is 735.
“They’re not as lucrative as what you’d find on an Amex Platinum or Chase Sapphire Reserve, but they’re still significant. Of course, the story would probably be different if the credit union cap were 10%, but credit unions are still proof that rewards and rate caps can successfully coexist,” he said.
However, he believes that the 0% balance transfer credit card offers would disappear if the rate cap were introduced.
“Banks simply wouldn’t be willing to take this kind of risk under a restrictive rate cap, especially a 10% rate cap. That would be a big problem, although the interest paid under a 10% rate cap would be so much lower than what people are dealing with now that it would make those 0% deals less important,” he added.
The reason why politicians keep proposing them, even though they often don’t get any further, is because they are very popular even though they limit access to credit and their rewards can be dramatically reduced.
A 2024 LendingTree survey found that three in four credit card holders support these caps.
