White House weighs executive action to cap credit card rates

THE White House is weighing an executive action to enact President Donald Trump’s call for a cap on credit card interest rates, in addition to other measures seeking to ease US affordability challenges.

The plan, which is still being crafted as administration officials discuss the terms with industry and Congress, is designed to lower interest rates on credit cards as part of a broader push to reduce costs for Americans, according to people familiar with the matter.

Trump’s action may also call on regulators to relax certain liquidity standards to help make the plan more attractive for the banks, said the people, who asked not to be identified citing private discussions.

Trump’s administration has promised to announce a range of measures as part of his affordability push, including a ban on institutional investors buying single-family homes and a move to let savers tap 401(k) retirement plans for home down payments.

Although the timing on the potential executive action on credit card rates remains in flux, Trump said he’ll give further details on his affordability push when he speaks at the World Economic Forum in Davos, Switzerland next week. 

National Economic Council Director Kevin Hassett said Friday in an interview on Mornings With Maria on Fox Business that the administration has been in talks with the big banks who “think that the president’s on to something.”

The measures under consideration from the White House also include a possible bid to block stock buybacks for publicly traded homebuilders, some of the people said. Federal Housing Finance Agency Director Bill Pulte teed up the idea in an interview with the Wall Street Journal earlier this week.

The conversations about the proposals are ongoing and no final decisions have been made, said the people. The White House didn’t immediately respond to a request for comment.

Late last week, Trump called for a one-year, 10 per cent cap on credit card rates, setting a deadline of Jan 20. His administration has also been meeting with homebuilders to talk about affordability and he has said it would move to ban institutional investors from buying single-family homes. 

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Financial firms spent the week scrambling to figure out details about Trump’s credit card move. Industry trade groups have been mapping out plans on how to respond to the cap — one that Wall Street argues would hurt lower-income consumers and impact their own businesses.

But the president’s stated deadline of Jan 20 is looming and with few details, banks and payment firms are trying to ready themselves as administration officials haven’t let up.

On Thursday, Press Secretary Karoline Leavitt said the president expects companies to lower their rates by the deadline, calling it a “demand” from Trump. 

The topic came up frequently during the biggest banks’ earnings this week. Banks including JPMorgan Chase & Co, Citigroup and Bank of America expressed opposition to the 10 per cent cap, and broadly said they didn’t have enough information about the administration’s plans to estimate the impact on their businesses.

Citigroup chief financial officer Mark Mason said such a government-mandated limit threatened to slow the economy, while Bank of America chief executive officer Brian Moynihan said it would limit consumers’ access to credit as banks pulled back. 

Bank industry groups have also been fighting back.

“We’re talking about unsecured lending, so it’s not like an auto loan or a mortgage loan where there’s something you can take back,” Rob Nichols, president and CEO of the American Bankers Association, said in an interview Thursday.

Lobbyists and industry trade groups spent the week working to figure out how Trump exactly planned to implement such an order.

One option expected to be under consideration has been to invoke the interstate commerce clause as a way to override state usury limits, according to a lobbyist involved in industry discussions around responding to a possible executive order.

Next steps

Some consumer advocates have expressed concern that a 10 per cent interest rate cap would be too low, causing banks to pull back on lending and strand some customers. But they pointed to the fact that federal credit unions offer some rate caps, and suggested there might be a certain number that works best for the industry, policymakers and consumers.

“It’s about finding a reasonable rate that doesn’t undermine the ability of consumers who are struggling to get by,” said Adam Rust, director of financial services at the Consumer Federation of America. “It’s worth acknowledging and noting that credit unions have offered credit cards for a long time under a cap. Clearly there is a sweet spot where affordability and availability can coexist.”

The NEC’s Hassett threw out the possibility on Friday that the industry might voluntarily offer new “Trump cards.” One firm, Bilt, unveiled three new cards earlier this week with rates limited at 10 per cent, but that cap only lasts one year and will only apply to new purchases. BLOOMBERG