By Saeed Azhar and Manya Saini
Jan 13 (Reuters) – A proposed cap on credit card interest rates will hurt U.S. consumers and the economy, JPMorgan Chase Chief Financial Officer Jeremy Barnum said on Tuesday.
U.S. President Donald Trump last week proposed a one-year cap on credit card interest rates at 10% starting January 20, hitting banking stocks.
“If it were to happen, it would be very bad for consumers, very bad for the economy,” Barnum told reporters on a call, adding that the bank would have to change the business significantly and cut back.
“Our belief is that actually this will have the exact opposite consequence to what the administration wants.”
Wall Street analysts remained skeptical about the future of the proposal, pointing out that such a measure could only be enacted by Congress.
After being largely blindsided, financial groups quickly scrambled to rebut the proposal with new data that showed the cap would result in millions of American households and small businesses losing access to credit.
If implemented, the move would hit a major driver of industry profits. The business generates strong returns as banks charge high interest rates to compensate for the greater risk of default associates card loans, which are unsecured.
The average interest rates on credit cards in November stood at 20.97%, according to the Federal Reserve’s consumer credit report released last week.
Trump’s proposal comes ahead of the midterm elections as rising cost of living becomes a key issue. However, similar efforts have failed to gain traction when introduced by policymakers in the past.
Wall Street analysts said this week that until the issue of the proposal is resolved, which Trump has said he wants implemented from January 20, it will pose a significant overhang for credit card issuers.
A banking industry body said in a statement that a 10% cap on interest rates would reduce credit availability and “be devastating” for millions of American families and small business owners who rely on and value their credit cards.
“This is a very, very, very competitive landscape that involves, you know, providing services to customers who want them and need them,” Barnum said.
“If you wind up with weakly supported directives to radically change our business that aren’t justified, you have to assume everything is on the table. We owe that to our shareholders.”
(Reporting by Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen, Sriraj Kalluvila and Shinjini Ganguli)
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