Business
Commentary: Trump is demanding a 10% cap on credit card interest. Here’s why that’s a lousy idea
A few days ago, President Trump staked a claim to the “affordability” issue by demanding that banks cap their credit card interest rates at 10% for one year.
Actually, Trump announced that in effect he had imposed the cap, a claim that some news organizations accepted as gospel.
So let’s dispose of that misconception right off: Trump has zero power to cap interest rates on credit cards. Only Congress can do so.
The idea of a 10% rate cap has all the seriousness of bread-and-circuses governance.
— Adam Levitin, Georgetown Law
More to the point, his proposal, announced via a post on his TruthSocial platform, is a terrible idea. It’s half-baked at best, and harbors unintended consequences by the carload — so much, in fact, that the putative savings that ordinary households could see from the rate reduction might be diluted, or even reversed, by the drawbacks.
Still, the idea has so much consumerist appeal that it placed Trump in accord with some of his most obdurate critics, such as Sen. Elizabeth Warren (D-Mass.), who has been pressing to place limits on bank fees for years. Warren said she and Trump had a phone conversation in which they seemed to have talked companionably about the issue.
Trump’s announcement did have the salutary effect of placing the issue of financial services costs on the front burner, after its having languished for years. But it obscured the immense complexities of making any such change.
“Certainly this demonstrates a populist streak on both sides of the aisle,” says Adam Rust, director of financial services at the Consumer Federation of America. “But you can’t just write a tweet and upend a huge market.”
The market for credit cards is indeed huge. As of 2024, credit card debt in the U.S. exceeded $1.21 trillion. This is the most profitable line of business for many banks, producing $120 billion in interest income and $162 billion in fees, chiefly those the card issuers impose on merchants.
“Almost 30% of that is pure profit,” reported Brian Shearer of Vanderbilt University, a former official at the Consumer Financial Protection Bureau, in a 2025 study.
So it should come as no surprise that the entire banking industry has circled the wagons against a cap on credit card interest rates, especially one as stringent as 10%. On Jan. 9, the very day of Trump’s announcement, five leading bank lobbying organizations issued a joint statement asserting that a 10% cap would be “devastating for millions of American families and small business owners who rely on and value their credit cards, the very consumers this proposal intends to help.”
Among its drawbacks, the statement said, “this cap would only drive consumers toward less regulated, more costly alternatives.”
It’s tempting to dismiss the statement as the normal grousing of a big industry about a government regulation. Banks have acquired a certain reputation for profiteering from customers, especially less well-heeled customers, and playing fast and loose with the facts about their costs and profits. But the truth is that on this topic, they have a point.
Let’s take a look, starting with some basic facts — and misconceptions — about credit cards.
The credit card market is heterogeneous, segmented by income and more importantly by credit score. Those with the highest FICO scores typically get the lowest interest rates, but are also more inclined to pay off their balances every month without incurring any fees, even as their average balances are the highest.
About 40% of all users, including many with middling credit scores, pay off their balances monthly but use their cards for convenience, to access fraud protections provided by credit cards but not by other forms of credit, and to garner card rewards.
Interest fees aren’t the issuers’ sole source of revenue. Most revenue comes at the other end of the transaction, in interchange or “swipe” fees paid by merchants.
That’s why card issuers still cherish high-income transactors and shower them with rewards — the monthly balances of users in the 760-to-840 FICO score range vastly exceed those of other users, indicating that they’re generating correspondingly more in interchange fees from the merchants they patronize.
The average interest rate on credit cards reached 25.2% last year, according to a December report by the Consumer Financial Protection Bureau. It has steadily increased since 2022, mostly because of an increase in the prime rate, the benchmark for card issuers.
How did it get so high? Blame the Supreme Court, which in 1978 undermined state usury laws by ruling that banks could charge customers the usury rate of their home state rather than the rate in the customer’s state. That’s why your credit card may be “issued” by a bank subsidiary in Utah, South Dakota or Delaware, which have lax usury limits. The solution would be enactment of a nationwide usury limit, but that falls entirely within congressional authority.
So what would happen if Congress did place a limit on the maximum credit card interest rate — if not 10%, then 15% or 18%, as has been proposed in the past? Shearer contends that banks make such fat profits from credit card users at every FICO level that they could still earn healthy returns even at a 15% cap. Shearer estimated that a cap of 15% would produce more than $48 billion in annual customer savings “coming almost entirely out of bank profits.”
Other analysts are not so sanguine. “There is no free lunch here,” argues Adam Levitin, a credit market expert at Georgetown law school. Levitin argues that while issuer profits are large, their margins are not so large. He calculates that a 10% cap would make the general credit card business unprofitable, because there wouldn’t be enough headroom over the benchmark prime rate (currently 6.75%) to cover administrative costs and other overhead.
Issuers don’t have many options to preserve their profitability. So they’re likely to respond by shutting the door on low-income and low-FICO customers and ratcheting back credit limits.
“The effects will be devastating,” Levitin says. “Families that need the short-term float or the ability to pay back purchases over several months won’t have it. How will they pay for a new water heater when the old one goes out and they don’t have $3,000 sitting around?”
Many will be forced to resort to other short-term unsecured lenders — payday lenders, buy-now-pay-later firms and others that don’t offer the consumer protections of credit cards and would be exempt from the interest cap on credit cards.
“The idea of a 10% rate cap,” Levitin says, “has all the seriousness of bread-and-circuses governance.”
The availability of credit from alternative consumer lenders that don’t offer the statutory protections mandated for credit cards concerns consumer advocates.
A hard cap on interest rates “could create a sharp contraction in the kind of credit available in the marketplace,” says Delicia Hand of Consumer Reports. “It sounds good, but there could be unintended consequences, especially if you don’t think about what fills the gap,”
Alternative products aren’t regulated as stringently as credit cards. “Direct-to-consumer products can layer subscription fees, expedited access fees, and ‘voluntary’ tips in combinations that produce effective annual percentage rates ranging from under 100% to well over 300% — and in some documented cases, exceeding 1,000% when annualized for frequent users,” Hand said in remarks prepared for delivery Tuesday to the House Committee on Financial Services.
If an interest rate cap is too tight, all but the highest-rated customers might face higher annual fees and stingier rewards. Issuers are likely to squeeze merchants too. Big businesses — think Costco and Amazon — might be able to negotiate swipe fees down and eat the remainder instead of passing them through to consumers. But small neighborhood merchants might refuse to accept credit cards for purchases below a certain amount, or add a swipe fee surcharge to customers’ bills.
Other complexities bedevil proposals like Trump’s, or for that matter bills introduced last year in the Senate by Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) and in the House by Reps. Alexandria Ocasio-Cortez (D-N.Y.) and Anna Paulina Luna (R-Fla.), capping rates at 10% for five years. Those measures have the virtue of simplicity — they’re only three pages long — but the drawback, also, of simplicity.
Among the open questions, Levitin observes, are whether the 10% cap would apply to all balances or just to purchases. If the former, it remakes credit cards into tools for “low-cost leverage for cryptocurrency speculation and sports betting,” because in today’s interest rate environment it’s cheap money.
Trump’s announcement, in particular, displays all the drawbacks of insufficient cogitation characteristic of so many of his ventures. Published on Jan. 9, it called for the cap to be implemented on Jan. 20, the anniversary of his inauguration: a mere 11 days to implement a change in a $1.21-trillion market with potential ramifications on a dizzying scale.
Since he doesn’t have the authority to mandate the cap by executive order, he’s in effect calling for the banks to make the change voluntarily. Given the impact on their profits, on the gonna-happen scale, that’s a “not.”
Adding to the sour ironies of this effort, Trump’s far-right budget director, Russell Vought, has been pursuing a vicious campaign to destroy the agency with statutory authority over the consumer lending industry, the CFPB — of which Trump appointed Vought acting director.
Vought also rescinded a Biden-era CFPB rule reducing credit card late fees to no more than $8 from as much as $41—further undermining Trump’s attempt to pose as a friend of the credit card customer.
Consumer advocates are pleased that the debate over card fees has placed financial services costs squarely in the “affordability” debate, where they belong.
There’s no question that capping card interest rates at some level could bring savings to consumers to maintain monthly balances — “revolvers,” in industry parlance. “It could be worth several bags of groceries a month, or a tank of gas,” Rust conjectures — “significant savings for millions of people.”
The challenge is finding “where the right level is, balancing risk and availability,” he told me. “That’s not clear at the moment.”
Business
Hollywood stars line up against Paramount’s Warner Bros. acquisition
A constellation of stars are lining up against Paramount’s proposed takeover of Warner Bros. Discovery, expressing fears the blockbuster merger would devastate the industry and shrink production jobs.
The letter was signed by nearly 1,000 artists and movie creators, including such big names as Ben Stiller, Bryan Cranston, Noah Wyle, Joaquin Phoenix, Kristen Stewart and Jane Fonda, whose Committee for the First Amendment helped organize the campaign.
“This transaction would further consolidate an already concentrated media landscape, reducing competition at a moment when our industries — and the audiences we serve — can least afford it,” according to the letter. “The result will be fewer opportunities for creators, fewer jobs across the production ecosystem, higher costs, and less choice for audiences in the United States and around the world.”
Paramount, in a statement, pushed back against the artists’ concerns. Tech scion David Ellison and his team believes the blockbuster deal makes sense — particularly because of turmoil in the entertainment business, the company said.
“This is also a moment when the industry has been facing significant disruption—and the need for strong, creative-first and well-capitalized companies that can continue to invest in storytelling has never been greater,” Paramount said.
The Hollywood workforce has shrunk by more than 42,000 jobs between 2022 and 2024, according to a recent study. The economy has not bounced back following shutdowns due to the COVID-19 pandemic, followed by the twin labor strikes three years ago.
Thousands of film workers have been searching for work — but many of the big opportunities have moved abroad.
The strikes prompted studio executives to reset their output after previously spending big to build streaming services to compete with Netflix.
Two other consolidations led to widespread cutbacks: Walt Disney Co.’s acquisition of Fox entertainment assets in 2019, and Discovery’s takeover of AT&T’s WarnerMedia four years ago.
The resulting entity — Warner Bros. Discovery, led by David Zaslav — instituted deep cost cuts and thousands of layoffs to cut expenses because the firm was nearly drowning in deal debt — $43 billion — from the day Zaslav took the helm.
Paramount’s proposed takeover of Warner Bros. would result in a significantly higher debt load, $79 billion in debt, prompting concerns from the group and others about further downsizing.
Ellison, the 43-year-old son of billionaire Oracle co-founder Larry Ellison, is leading the effort to buy Warner Bros. Discovery to prop up Paramount, which the family acquired in August.
In late February, Ellison’s Paramount Skydance prevailed in a nearly six-month bidding war after Netflix unexpectedly bowed out when the elder Ellison agreed to financially back his son’s $111-billion deal.
“We have been clear in our commitments to do just that: increasing output to a minimum of 30 high-quality feature films annually with full theatrical releases, continuing to license content, and preserving iconic brands with independent creative leadership,” Paramount said, adding that such promises should ensure that “creators have more avenues for their work, not fewer.”
Warner shareholders will be asked to approve the merger April 23.
Ellison is pushing to wrap the deal up this summer.
“We are deeply concerned by indications of support for this merger that prioritize the interests of a small group of powerful stakeholders over the broader public good,” the letter said. “The integrity, independence, and diversity of our industry would be grievously compromised. Competition is essential for a healthy economy and a healthy democracy. So is thoughtful regulation and enforcement.”
The group urged California Atty. Gen. Rob Bonta and his fellow state attorneys general to sue to block the transaction.
Bonta has told The Times that his office is reviewing the transaction to see if it violates antitrust rules. Two historic movie studios, several streaming services and dozens of cable channels would be brought under one roof.
“Media consolidation has already weakened one of America’s most vital global industries,” the group said, “one that has long shaped culture and connected people around the world.”
Bonta’s office is leading the charge against another merger, TV station giant Nexstar Media Group’s $6.2-billion takeover of Virginia-based Tegna. Eight state attorneys general, including Bonta, have sued to block that deal. A judge is expected to rule on whether to issue a preliminary injunction later this week.
Business
OpenAI CEO Sam Altman addresses Molotov cocktail attack on his home and AI backlash
Hours after a Molotov cocktail was thrown at his San Francisco home, OpenAI Chief Executive Sam Altman addressed the criticism surrounding artificial intelligence that appears to have been the impetus for the attack.
In a lengthy blog post, Altman shared a family photo of his husband and child, stating he hopes it might convince people not to repeat the attack despite their opinions on him.
The San Francisco Police Department arrested a 20-year-old man in connection with the Friday morning attack but did not publicly comment on the motivation. Altman and his company, the maker of ChatGPT, have been at the center of a heated debate about whether AI will change the world for better or worse.
“While we have that debate, we should de-escalate the rhetoric and tactics and try to have fewer explosions in fewer homes, figuratively and literally,” Altman wrote.
The rise of AI chatbots that can generate text, images and code has raised concerns about whether there are enough guardrails around the development of the powerful technology.
From job displacement to the effects of AI on mental health and war, critics have been vocal about their fears. Families have also sued technology companies including OpenAI and Google, alleging in lawsuits that their chatbots contributed to the death of their loved ones. OpenAI has faced backlash after striking a deal with the Department of Defense shortly after its rival Anthropic raised AI safety concerns and lost its contract.
Politicians in California and other states have been passing new laws that target AI safety. And groups that aim to stop the development of AI have regularly protested outside OpenAI’s San Francisco headquarters.
In the blog post, Altman acknowledged the fear and anxiety surrounding AI was “justified” because “we are in the process of witnessing the largest change to society in a long time, and perhaps ever.” But he also said that people will do “incredible things” with AI and that “technological progress can make the future unbelievably good.”
Altman has become a controversial figure as companies race to advance AI. In 2023, OpenAI’s board of directors fired Altman, stating that he wasn’t “consistently candid” in his communications with the board and that board members had lost confidence in his ability to lead the company. OpenAI’s mission is to “ensure that artificial general intelligence benefits all humanity,” the board said at the time. Facing pressure from its employees and investors, OpenAI reinstated Altman as chief executive less than a week after he was pushed out. A new board was put in place and members who supported ousting Altman left.
Altman said in the blog post that he has made mistakes and done things he’s not proud of, describing himself as “conflict-averse.”
“I am not proud of handling myself badly in a conflict with our previous board that led to a huge mess for the company,” he wrote.
Since his return, OpenAI has expanded its presence in healthcare, retail, defense and other industries. But controversy has followed the company. OpenAI is currently in a legal battle with billionaire Elon Musk, who has accused the company of abandoning its nonprofit founding mission in a case that’s expected to head to trial. Musk, a co-founder and early investor in OpenAI, alleges he was manipulated into funding what he thought was a nonprofit but turned into a “moneymaking endeavor.” OpenAI alleges that Musk, who runs rival xAI, is suing to slow down a competitor.
Last week, the New Yorker published a lengthy story about Altman that posed the question about whether he could be trusted.
In his blog post, Altman referenced an “incendiary article” published about him but didn’t name the publication, adding that “words have power.” OpenAI didn’t immediately respond to a request for comment on Saturday. On the social media site X, Altman said he regretted using certain words in his blog after an editor from the AI newsletter Transformer pointed out that Altman implied that a critical piece of journalism was responsible for the attack.
Altman said the attack happened at 3:45 a.m. on Friday but the Molotov cocktail “bounced off the house and no one got hurt.”
The San Francisco Police Department and OpenAI previously confirmed the attack on Friday. The suspect allegedly made threats to OpenAI’s headquarters after the attack at Altman’s home.
Several news outlets, including the San Francisco Chronicle, identified the suspect as Daniel Alejandro Moreno-Gama.
Moreno-Gama was booked on Friday on suspicion of making criminal threats, arson, attempted murder, possession of a destructive device and other charges. The Chronicle also cited a Substack that appeared to be from the suspect that includes posts titled “AI Existential Risk.”
The Times asked the San Francisco Police Department on Saturday whether the account belonged to the suspect.
“At this time we have no further updates to provide,” the department said in an e-mail.
Business
Fire survivors call for audits of Edison’s wildfire prevention spending
Survivors of the devastating Eaton fire called on state lawmakers on Wednesday to pass a bill requiring audits of spending by Southern California Edison and the state’s two other big for-profit electric companies on wildfire prevention.
The survivors pointed to an investigation by The Times that found that Edison had not spent hundreds of millions of dollars that it told regulators before the fire was needed to keep its transmission system safe. Edison had begun charging customers for the costs.
“Californians funded the wildfire prevention,” Joy Chen, executive director of Every Fire Survivor’s Network, told members of the Assembly Utilities and Energy Commission on Wednesday. ”And we survivors paid the price when that work was not done.”
While the government’s investigation into the fire has not yet been released, Edison has said it believes that a century-old transmission line, which had not carried power since 1971, may have briefly re-energized on the night of Jan. 7, 2025, to ignite the fire. The inferno killed 19 people and destroyed thousands of homes and other structures in Altadena.
Chen’s wildfire survivors group and Consumer Watchdog sponsored the bill, known as Assembly Bill 1744. It would require the wildfire safety spending by Edison, Pacific Gas & Electric and San Diego Gas & Electric to be audited by an independent accounting firm.
The state Public Utilities Commission would have to consider the audits’ findings before agreeing to raise customer rates to cover even more wildfire spending.
“Had Edison known it would be accountable for those funds, that wildfire may not have started,” Jamie Court of Consumer Watchdog told the committee, referring to the Eaton fire.
All three utilities said at the hearing they opposed the bill.
A lobbyist for San Diego Gas & Electric said he believed the audits were unnecessary because the commission was already reviewing the spending.
“We think it creates a duplicative process,” he said.
At the committee hearing, Edison’s lobbyist did not say why the company was opposed to the bill.
The company has previously said that safety is its top priority and that it does not believe maintenance on its transmission lines suffered before the Eaton fire.
Also voicing support for the bill at the hearing were survivors of other deadly wildfires in the state, including the 2018 Camp fire, which killed 85 people and destroyed much of the town of Paradise. Investigators found that the fire was ignited when equipment failed on a decades-old PG&E transmission line.
The bill’s author, Assemblywoman Tasha Boerner, an Encinitas Democrat, pointed to how independent audits of the three companies’ wildfire spending from 2019 to 2020 found that $2.5 billion could not be accounted for.
Those were the last independent audits of the three companies’ wildfire spending.
Despite the findings, the commission did not require the companies to return any of the questioned amounts to electric customers. Instead, the commission agreed the companies could spend billions of dollars more, Boerner said.
“This is frankly unacceptable,” she said.
Asked for a response to those audits, the lobbyist from San Diego Gas & Electric told the committee he wasn’t familiar with the findings.
California electric rates are the nation’s second highest after Hawaii.
In 2024, wildfire expenses amounted to 17% to 27% of the costs the three companies charge to consumers, according to a legislative analysis of Boerner’s bill. The average residential customer pays $250 to $490 a year for that spending.
-
Atlanta, GA1 week ago1 teenage girl killed, another injured in shooting at Piedmont Park, police say
-
Georgia6 days agoGeorgia House Special Runoff Election 2026 Live Results
-
Arkansas3 days agoArkansas TV meteorologist Melinda Mayo retires after nearly four decades on air
-
Pennsylvania7 days agoParents charged after toddler injured by wolf at Pennsylvania zoo
-
Milwaukee, WI1 week agoPotawatomi Casino Hotel evacuated after fire breaks out in rooftop HVAC system
-
Technology1 week agoAnthropic essentially bans OpenClaw from Claude by making subscribers pay extra
-
Austin, TX6 days agoABC Kite Fest Returns to Austin for Annual Celebration – Austin Today
-
World1 week agoZelenskyy warns US-Iran war could divert critical aid from Ukraine