“It would take away the credit of 80% of Americans, and that is their reserve credit,” Dimon, the longtime head of JPMorgan and Wall Street’s most influential banker, said at the World Economic Forum in Davos.Trump reiterated his call to cap interest rates on Wednesday in a separate speech at the WEF, an annual gathering of global political and business leaders.
“I am asking Congress to cap credit card interest rates at 10 percent for one year,” Trump said. “One of the biggest obstacles to saving for a down payment is rising credit card debt. The profit margin for credit card companies is now over 50%, one of the largest.”
Banking industry bodies have strongly opposed this move, arguing that it would limit access to credit for ordinary consumers. Meanwhile, Wall Street analysts said such a measure would require legislation and is unlikely to pass, with Democrats and Republicans divided over its support.
“I think we should test it,” Dimon said. “The government can do it, they should force all banks to do it in two states – Vermont and Massachusetts – and see what happens.” Although Dimon didn’t explain why he chose those two states, the idea drew laughs from the crowd. Left-wing Senators Bernie Sanders and Elizabeth Warren, who represent Vermont and Massachusetts respectively, have both advocated for legislation that would cap credit card interest rates.
“The people crying the most are not going to be the credit card companies. It’s going to be the restaurants, retailers, travel companies, the schools and the municipalities, because people are going to miss their water payments, this payment and that payment,” Dimon said.
INDUSTRY CRAMBLE
Trump, who called on companies to comply by Jan. 20 in a post on his social media platform Truth Social, blindsided the industry and sent bank stocks tumbling as investors balked at the prospect of one of the industry’s most profitable businesses grinding to a halt.
“The president is asking Congress to pass legislation, so he’s not going to try to personally set lending rates. That makes it very unlikely that a 10% cap will be implemented anytime soon,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management. “It does give him the opportunity to point the finger at Congress if it doesn’t happen.”
The S&P 500 Banks Index, which tracks major lenders, last rose 1.2% on Wednesday.
Credit cards generate strong returns for banks, which charge high rates to compensate for the higher risk of default on card loans, which are not secured.
Major Wall’s street banks are pushing back on some of Trump’s ideas to lower the cost of living in the US ahead of the midterm elections and proposing alternatives in a bid to shape policy, Reuters reported, citing sources.
“We’re going to give them a real analysis of the effects of this at some point. We’ve given some, but not many,” Dimon said.
Last week, JPMorgan Chief Financial Officer Jeremy Barnum was asked in a post-earnings call whether the company would take legal action against interest rate caps. “If you end up with weakly supported directives to radically change our business that are not justified, you have to assume that everything is on the table,” he said.
Analysts have said card providers could make conciliatory gestures with innovative offers such as lower rates for certain customers, no-frills cards that may charge 10% but have no rewards, or lower credit limits.
Dimon’s comments echoed the views of other top banking industry CEOs.
In an interview with CNBC from Davos earlier this week, Citigroup CEO Jane Fraser said she does not expect Congress to approve caps on credit card interest rates.
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