If you ever bought something online and most of us have, it was much easier to do if you have a credit card. The credit card world is dominated by VISA and Mastercard, along with Amex. Many years ago when VISA and Mastercard came out, banks only issued one or the other, but things changed and now banks can issue both cards. The President decided that in the name of affordability, he wants to a 10% cap on credit card rates.

In an article by Ken Sweet and Seung Min Kim of the Associated Press, some background information was given. About 195 million people had credit cards in 2024 and were assessed $160 billion in interest charges, according to the Consumer Financial Protection Bureau. The debt on the credit cards was $1.23 trillion according to the New York Federal Reserve statistics.

The average rate of a credit card is between 19.65% and 21.5%, according to the NY Fed. A decade ago, the average rate was 12%.

Credit card companies make their money 3 ways: fees charged to merchants, fees charged to customers and the interest charged on the balance of the card after the 30 day period has expired.

Credit card debt is unsecured, which means a customer does not have to pledge assets against the debt, ie a mortgage is secured by the value of the house. Between 25% and 50% of credit card holders actually pay off the debt at the end of the month, which means a 10% cap does nothing for them. The other customers always have debt and it goes up quickly.

The President does not have the power to change the interest rate on credit cards but Congress could and has. Department stores issue credit cards with a rate towards 30% and Congress enacted a cap on those cards, the credit card industry stripped the cards of the rewards and perks from those cards.

There is a cap on interest rates issued by credit unions which is 18% and the Military Lending Act makes it illegal to charge active-duty members more than 36% for any financial product.

Senators Bernie Sanders and Josh Hawley want interest rates capped at 10% for 5 years.

In Arkansas, interest rates are capped at 17%, the evidence points to the poor and less creditworthy being cut out of the consumer credit markets. If someone has a credit score 600 or below, likely they would not have a credit card.

One of the solutions for those cut out is the preloaded credit card, but likely the amount will only be in the hundreds of dollars. Another solution is Buy Now Pay Later cards. Something to consider is payday loans, should they be capped?

Linking to dividend paying stocks, one of the advice that Warren Buffett told students and many others – buy the credit card companies stock, do not pay credit card interest. If you look at the stock of the credit card companies, it has been a good investment. Credit card companies because they are profitable will always have politicians signally them out for some solution or other. They do remain good investments – if you can buy the stock, not paid the interest.

There are more questions than answers, till the next time – to raising questions.