FILE-A close up of several credit cards shown in a photo. (Photo by Fairfax Media via Getty Images via Getty Images)
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A paper published by Vanderbilt University finds that Americans would save about $100 billion annually in interest costs if President Donald Trump’s 2024 campaign pledge to cap credit card interest rates at 10% were instituted.
Research from the school’s paper found that banks and credit card organizations would be able to oppose, and even still be profitable, if there were to be a national cap on interest rates.
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What does Vanderbilt’s research say about Trump’s credit card cap rates?
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Dig deeper:
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The Vanderbilt University paper determined that banks would still be able to earn a profit on most of their customers even if credit card interest rates were capped at 15%, and if the banks continued to offer rewards and bonuses like points and airport lounge access.
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Additionally, if interest rates were capped at 10%, the business model gets more difficult for the banks, but they could still make money off most card customers by cutting back on some rewards.
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RELATED: Paying off credit card debt in these states will take the longest, study finds
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The Vanderbilt paper finds that banks, because they largely fund their rewards programs through fees paid to merchants, would not likely reduce rewards for consumers.
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But consumers who would likely see the largest deduction in rewards would be those with low credit scores, because they are considered the riskiest borrowers.
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Bank customers with low credit scores tend to be the ones who carry a credit card balance, instead of consumers who pay off their credit cards monthly.
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How much credit card debt do Americans have?
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Why you should care:
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Citing data from the Federal Reserve, the Associated Press reported that Americans are carrying $1.21 trillion in credit card debt, which is $6,400 per person. And the average credit card interest rate is about 21%, which is higher than 10 years ago.
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The AP noted that banks earn revenue from credit cards through the amount of money they charge merchants to process a credit card transaction and the interest and fees the banks charge consumers. This might be an annual fee on a credit card, or the monthly interest that accrues when a consumer has a credit card balance.
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RELATED: Josh Hawley, Bernie Sanders propose capping credit card interest rates at 10%
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Some politicians have proposed legislation like President Donald Trump’s proposed credit card cap.
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FOX Business reported that Sen. Josh Hawley, R-Missouri, and Vermont Senator Bernie Sanders introduced a bill in Congress that would match Trump’s campaign proposal of capping interest rates at 10%.
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And the Associated Press noted that similar legislation was proposed in the House by Rep. Alexandria Ocasio-Cortez, D-New York.
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The Source: Information for this story was provided by a paper published by Vanderbilt University, FOX Business, and the Associated Press. This story was reported from Washington, D.C.
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