Former President Donald Trump and Vice President Kamala Harris have differing economic plans, but what does that mean for the credit cards in your wallet? Will one candidate help to elevate credit card debt more than the other? Let’s get into it.
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Trump vs. Harris: Credit Card Policies
Only Trump has proposed credit-card-specific policies, while Harris has focused on other related issues, like junk fees. The Biden administration has been continuously battling such fees, so it’s no surprise Harris plans to continue in the same direction.
Trump: 10% Cap on Interest Rates
Americans first learned of Trump’s proposal from a speech he gave at a rally on Long Island, New York, in September.
“While working Americans catch up, we’re going to put a temporary cap on credit card interest rates,” he said. “We’re going to cap it at around 10%. We can’t let them make 25(%) and 30%.”
According to the Federal Reserve, the average credit card interest rate as of August 2024 is 21.76% — so that proposal is a bit of a difference. It’s understandable why such a cap would be of interest to Americans, as credit card debt is at an all-time high at $1.14 trillion. But Trump’s proposal would almost certainly be dead on arrival.
In a note to investors, Jaret Seiberg, managing director at TD Cowen’s Washington Research Group, said, “We still see this as a low-probability event as it would require an act of Congress.”
Capping interest rates isn’t a new idea. Last year, Sen. Josh Hawley, R-Mo., proposed a bill to cap interest rates at 18%. In 2019, Sen. Bernie Sanders, I-Vt., and Rep. Alexandria Ocasio-Cortez, D-N.Y., proposed a bill that would cap interest rates at 15%. But 10% is unheard of, as interest rates have never dipped that low in the 30 years the data has been recorded.
And while lower interest rates sound great on the surface, it could actually lead to some unintended consequences. Interest rates on a card reflect a bank’s assessment of how risky a customer is — i.e., will they pay their credit card bill on time?
Consumers with lower credit scores are approved with a higher interest rate as a way for banks and issuers to receive a little peace of mind. But a cap as low as 10% would most likely stall approvals for many consumers.
The American Bankers Association issued a statement saying, “While we don’t know the specific details of this proposal, ABA has opposed similar interest rate cap proposals in the past … because they would result in the loss of credit for the very consumers who need it the most. Instead, these consumers would be forced to use less regulated, more risky alternatives, including payday lenders and loan sharks.”
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Fed Rates: Long Term
While the president doesn’t have authority over the Fed, the president can still influence the Fed and its decisions through certain powers. And the Fed’s rate-setting influences many sectors of the economy, including your credit card.
The president can appoint and remove the Federal Reserve chair and vice chair. Fed chairs and vice chairs serve four-year terms and can be reappointed by the president. Trump appointed the current Fed chair, Jerome Powell, who assumed the post in 2018.
The president can also nominate key officials like the seven members of the Fed’s Board of Governors. One term begins every two years, and a full term is 14 years. Members who serve a full term cannot be reappointed.
The powers stop there, but Trump and Harris have differing views on how involved the president should be when it comes to setting interest rates.
“I feel the president should have at least (a) say in there,” Trump said at an August news conference at his Mar-a-Lago residence in Florida.
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“I think that in my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman,” he said.
This is echoed in Trump’s proposed policy concerning the Federal Reserve. Trump plans to challenge the Fed’s political independence, consider replacing Powell as chair and favor easy-money policies and low interest rates. All would require legislative action, so it’s unclear what would pass and to what extent.
Harris, on the other hand, plans to “preserve the Fed’s traditional political independence and likely keep Jerome Powell as chair.” This would require no action or change.
Final Thoughts
In the short term, nothing will change when it comes to your credit cards. However, depending on who wins, it could create some waves in the long term concerning Federal Reserve involvement.
More from U.S. News
Trump’s Economic Plans Will Explode the National Debt, Though Harris Will Also Add to the Tally
Decision Guide: What Happens to the Economy Under Trump vs. Harris
Report: Trump’s Economic Proposals Would ‘Dramatically Worsen’ Social Security
Does It Matter for Your Credit Card Who Wins the Election? originally appeared on usnews.com
