Trump's Credit Card Interest Rate Cap Proposal Sparks Concern

President Donald Trump's proposal to cap credit card interest rates at 10% has raised concerns in the mortgage industry. The cap might seem beneficial, but it could ultimately hurt would-be homebuyers. Mortgage professionals worry that the policy could lead to reduced credit availability, outweighing its benefits.

Understanding the Proposal

The proposal aims to help Americans save for a home by reducing credit card debt. Trump believes that profit margins for credit card companies are too high, and interest rates charged to consumers are often excessive. He wants to cap credit card interest rates at 10% for one year to help millions of Americans save for a home.

Potential Consequences

Mortgage professionals caution that the response by credit card companies could undermine the gains from the proposal. Credit card companies might tighten credit severely, leading to reduced credit limits and higher credit utilization ratios. This could drag down credit scores and hurt mortgage eligibility.

Impact on Credit Availability

The tightening of credit could take the form of reduced credit limits, which would drive up borrowers' credit utilization ratios and potentially drag down credit scores. Banks could also respond by denying credit cards to borrowers who would otherwise qualify, given the lower return relative to risk. This could make it harder for consumers to build credit histories and eventually access the mortgage market.

Mixed Results

New Jersey-based mortgage broker Joe Racamato said the proposal could produce mixed results. On the one hand, a lower interest rate could lead to lower minimum monthly payments and a better debt-to-income ratio. On the other hand, banks could reduce available credit lines, raising the average credit score of approved cardholders while leaving underserved borrowers with even fewer options.

Industry Response

The American Bankers Association (ABA) has pushed back strongly against the proposal. The group estimates that a 10% cap could result in 74% to 85% of open credit card accounts being closed or having their credit lines sharply reduced. This could affect millions of cardholders and potentially hurt the economy.

Looking Ahead

As the proposal moves forward, it's essential to consider the potential consequences and find a balance between helping consumers and maintaining a healthy credit market. The future of credit card interest rates and their impact on the mortgage industry will depend on the outcome of this proposal and the response of credit card companies and lawmakers.