JPMorgan Chase CEO Jamie Dimon issued a stern warning about President Donald Trump’s credit card rate cap at the World Economic Forum in Davos on Wednesday, saying that it would be an “economic disaster.”
Trump said that he wants to impose a 10% cap on credit card interest rates for one year, saying he wants to prevent consumers from being “ripped off” by credit card issuers, with interest rates that may exceed 20% for some borrowers.
When asked whether Trump’s proposed rate cap was a bad idea, Dimon said during a moderated discussion in Davos that while it would affect the bank’s business, it would “survive it,” but warned the cap would limit credit for a majority of consumers.
TRUMP CALLS FOR 1-YEAR 10% CAP ON CREDIT CARD INTEREST RATES
“It would be an economic disaster,” Dimon said. “It would remove credit from 80% of Americans. And that is their back-up credit.”
Before implementing this, Dimon said it should be tested in two states.
“They should force all the banks to do it in two states, Vermont and Massachusetts, and see what happens,” Dimon said. He did not indicate a reason for picking the states, but the remark drew laughter from attendees.
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His comments echo concerns from JPMorgan CFO Jeremy Barnum, who said last week that the push to put a 10% cap on credit card interest rates could hurt the broader economy and significantly reduce access to credit.
“What’s actually simply going to happen is that the provision of the service will change dramatically. Specifically, people will lose access to credit, like on a very, very extensive and broad basis, especially the people who need it,” Barnum said during a call tied to the bank’s fourth-quarter earnings release.
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Barnum said this could create a “severely negative consequence for consumers and, frankly, probably also a negative consequence for the economy as a whole.”
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%.
Richard Hunt, executive chairman of the Electronic Payments Coalition (EPC), told reporters that EPC’s analysis of a 10% credit card cap found that nearly every credit card account associated with a credit score below 740 would be closed or severely restricted if a 10% interest rate cap were implemented.
That would impact 175 million to 190 million American cardholders who would lose access to their credit cards, primarily lower- and middle-income households. Data from the Federal Reserve Bank of New York found the average credit score for low-income Americans was 658 while it was 735 for middle-income households.
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