By Phil Kerpen
Excerpt from the Washington Examiner:
Bank-bashing is one of America’s oldest and most cherished traditions, and President Donald Trump is grabbing hold of it with both hands. He recently called left-wing Sen. Elizabeth Warren (D-MA) to discuss his embrace of her proposal — with fellow socialists Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) — to cap credit card interest at an annual rate of 10%. A day later, Trump endorsed Sen. Dick Durbin’s (D-IL) longtime hobbyhorse of imposing price controls on swipe fees, too. Big merchants think that will improve their margins, but Trump’s shift on credit cards is more likely to undermine their customers’ purchasing power. Warren, Sanders, and Ocasio-Cortez have been clear that they want to end private consumer lending and replace it with government programs. Shouldn’t Trump know better?
Suppose you could get a $1,000 loan for a month that would cost you $10. That’s an amazing bargain at 1% interest. But annualize that to APR, and suddenly it’s above the Trump/Warren/Sanders 10% line. Their bill effectively bans any monthly interest north of 0.8%.
Industry experts surveyed by the Electronic Payments Coalition estimate that anybody with a credit score below 740 would be unlikely to get approved for a credit card and would face possible cancellation of existing cards or a dramatic reduction in their credit lines. That’s more than 80% of everybody currently with a credit card, literally hundreds of millions of people losing access to credit.
It’s simple math: the issuing bank has costs of about 4% interest to carry the paper, 5% in credit losses, and another 5% in collection and administration costs. And a lot of customers pay in full within the grace period, so they generate zero interest for the banks.
Read more: Washington Examiner