22 Minutes on the Proposed 10% Credit Card Interest Rate Cap

Speaker A: It's unfortunate too, because I do think that a lot of banks and credit unions will preemptively increase rates and fees to get ready for this type of change. These two legislations have a lot of hurdles to overcome. And just in this conversation, we've already mentioned, you know, probably 20 reasons why this is a bad idea. I think that politicians will have a hard time approving this, Democrat or Republican.

Speaker B: Welcome to 22 Minutes in Lending, your go to podcast for insights on all things lending from lending practices, regulatory updates, how to enhance lending efforts, and more. In each episode, Vince Pasillon connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let's dive in to the latest in lending.

Speaker C: Welcome to 22 Minutes in Lending. I'm, um, your host, Vince Pasione, and today I'm joined by David Schipper, strategic advisor to retail banking and payments and at Data Insights. David specializes in developing and managing debit and credit card strategies for US Financial institutions. And he spent more than two decades inside the credit card ecosystem, working with issuers and studying how consumers use credit. He's also a regular industry voice in outlets like the New York Times and American Banker. Today we're going to talk about one of the hottest policy debates in consumer finance right now, the proposed 10% credit card interest rate cap and what it could mean specifically for credit unions. David, thanks for joining us.

Speaker A: Yeah, thank you for having me.

Speaker C: Awesome. Well David, before we jump into this pending piece of legislation and the discussion around it, how about a quick background on you. Tell us, what does Daados Insights do? Who are your customers? What's the specialty?

Speaker A: We are focused, uh, solely on financial services. So there's some of other firms out there, they have a pretty broad coverage, but we solely focus on financial services. We have an insurance group, wealth management. I'm in the retail banking group. We also have commercial fraud and AML in the UK we have, uh, a very strong data group that was formerly rbr. And so we look at, you know, any, any, any number of topics that could be important to card issuers. From my perspective, card issuers, but also any, any player in the field, whether that's a bank, credit union, um, a fintech, a service provider. We really, um, our, our clients have a, you know, cover a lot of different areas.

Speaker C: Awesome. Let's jump in. So the 10% Credit Card Interest Rate Cap act of 2025 is how it was titled and I was taking a look, preparing for the call. Right. The act was proposed by Bernie Sanders and then Republican Hawley Signed on as well. Um, give us a recap. What was proposed.

Speaker A: Before I start, my opinion is, is really what I think is going to happen. It's not about defending and preparing profitability at a, at a financial institution or anyone else. It's really how I see it, and that's how we approach everything as unbiased as possible. So the proposal is pretty plain. If you look at the text. It's 10% cap. Um, I think, you know, with comments that were made recently that, that, you know, that it might be only for 12 months. I think the original bill just said it would be a 10% cap on credit cards, and it was a blanket statement. You know, it didn't differentiate between interest type, you know, interest rate types or APR types. So there's no differentiation for cash advance or anything like that. It's just 10% starting whenever the bill is passed. And if you charge more than that as an issuer, then you'll forego all of your interest earnings now.

Speaker C: Uh, so, David, when I looked at the outstanding, there's $1.2 trillion of credit card debt outstanding. So, so how did it get this high before folks like Bernie Sanders and others decided it was time for the government to get involved?

Speaker A: From a legislative perspective, we just culturally, um, we like to spend. We like, you know, especially around the holidays. There's just so many variables, and it does. I, I do get a sense that consumers are a little strained but don't want to change their spending. Right. So we have these credit cards that offer rewards, that encourages you to spend more. They allow you to roll over a balance and only pay, you know, maybe a 2% minimum payment allows you to extend that. I mean, there's just so many variables. But I think when it comes down to it, we should look at the economy and look at, you know, the consumers that are getting credit and how they're using it and whether or not they're able or willing to pay that back.

Speaker C: So, David, if consumers, and I agree, they're not willing to curtail their spending, right? Cost of living is going up. There's a lifestyle they're trying to maintain. Everything is getting more expensive. Doesn't the 10% rate cap make sense then?

Speaker A: Well, it could. I mean, but it's. It's got so many. The side effects of a 10% rate cap, you know, and I'm not a huge, like, deregulation person, I think that regulations can, you know, be useful and consumers should be protected. Sometimes. In this situation, though, we have a, you know, we have a, We Have a product that relies heavily on interest revenue. Right. I mean there's still interchange, there's fee income, but the APR generates the revenue. So if you cut that in half, what will happen is you'll see a financial institutions, card issuers, credit unions, banks start to approve less credit, start to close accounts, start to maybe reduce the credit lines, um, approve fewer accounts. People who were borderline before but were still getting a 500 or thousand dollar credit card, they won't get those anymore. Um, and then you have to ask, well, where are they going to go? They're going to go to things that are even more expensive than the 20% credit card you have today. Right. They're going to go to payday lending. They're going to, maybe BNPL is an alternative, but then they'll have to use that and rely on it more. So people will find ways to get credit. It's a huge statement. It sounds great, but at the end when it really comes down to it, it can harm the people it's meant to protect.

Speaker C: The product's price for risk.

Speaker D: Right?

Speaker A: That's right.

Speaker C: And that's the challenge. And it's always the law of unintended consequences. What happens right, when you can't price for that risk. And as you put it, we're going to cut out a, a pretty significant population of people who probably need it and they're going to find an alternative. And we were talking before the call. I think the Military Lending act is a very good example of where um, you know, there were very good intentions but the downstream consequences were rough. Right. Because it was a cap that was introduced uh, on, on, on folks who were in the military and veterans. And as a result, uh, many of those people wound up having availed themselves of, of payday lenders. And a lot of the payday lenders modified their products as a result of that. You know, they went beyond 90 days. They did all kinds of things to make the product not come under um, that new piece of regulation. So going back to the act and this 10% cap, so Sanders proposed it in 2025. Nothing happened. Then Trump got up and made a comment in January, hey, we should put this thing in place and maybe do a cap for a year. Was there any more detail behind Trump's statement? Was he as specific as what, what, what Sanders, uh, and Hawley laid out or has any more detail come out on what Trump was thinking about?

Speaker A: I'm not aware of any, you know, and he, Donald Trump obviously says things and, and then moves on. So I think this is one of those situations where yeah, it sounds great, but he added the 12 month limit, uh, to it and again, you know, it makes sense from. Yeah, okay, well maybe this will create temporary relief, but I think the size, again the unintended consequence of that is now we're having, and I won't pick on anyone, but I've seen recently credit cards that are offering a uh, 10% intro rate for one year. You know, you have to ask yourself, would that have been 0% if this was never said? You know, is just the comment itself preparing, getting people prepared for a worst case scenario and already increasing the price of something that, you know, might have been lower if the comments hadn't come out. So I think, as far as I can tell, that the comments were made and not a whole lot has been added to that to clarify what that means or what that could look like. Uh, again I'll go back to the fact that you know, interest rates are very complicated, right? You have um, a default rate, you have a cash advance rate, you have all of these other variables. None of, none of what's been put out has carved out any exceptions for a default rate. For example, what if the person's not paying back? Should they have a higher interest? Should cash be a higher, ah, interest rate because it's a higher risk transaction? I mean I think those are the kind of conversations before anything. Not that I think anything will get passed. Anything's um, possible, but those are the kind of conversations that will have to come out.

Speaker C: So let me, let me read you. I'm curious about your opinion of some of these quotes that I got and some of the concerns that were raised specifically in the credit union industry. But some stats first. So I took a look. As of January 2026, credit unions average classic credit card rates about 12.8% versus banks, which is about 16%. Um, credit unions already operated under the statutory 18% interest rate cap imposed by Congress back in 1980. Um, America's Credit Union CEO Scott Simpson made this comment. He said a 10% interest rate cap would be devastating for credit union members. The plain truth is that capping rates at 10% does not make credit more affordable. It makes it unattainable for millions of Americans. And then the dcuch, um, specifically made a statement that the passage of any of these proposals were material weakened credit unions. Taken together, they threatened to put many credit unions out of business. David, are those fair comments? Does that sound like a well rounded opinion? Yeah.

Speaker A: You know, whenever in a situation like this, whenever, I mean when A bank or credit union, you have to, you know, obviously they're biased, right? They don't want to lose that source of income in this situation. I, I agree with the concerns that they have because um, it will make some credit card programs insoluble or not soluble, it will make them not profitable. But um, all of that will, will have to be managed. Right. And it's just I, I think the concerns are valid. It will result in fewer approvals, closed accounts, higher fees, you know, to offset that, that, that interest income. And we'll have a situation where people in some ways might be incented to carry a balance that they might not normally carry. Um, but the, the bank or the credit union is going to make less money. I, all of everything I've heard from the industry is, is totally valid. It will cause some issues for the end consumer and it's, and, and the consumer doesn't even know that, right? They just hear this. It sounds great. It sounds really nice to have a lower interest rate, especially if you carry a balance. But at the end of the day it's just going to result in lower profit, lower revenue for the card issuer which is going to make them pull back and then that's going to have, you know, it's, it's a domino effect. In the end it will affect the consumers that need that access to the credit the most. The people who are already paying off their balance every month, you know, with the premium cards, they are not going to be affected by this at all. They already don't pay interest. It's the people who really need it that are going to be the hurt, that are going to be the most hurt.

Speaker C: Now that's an interesting point and I think that's the one that, that our clients, our credit union clients are trying to try to put in front of their legislators. And we're going to the gac. Pretty soon they'll walk the hill, they'll hike the hill. Uh, it really is going to have a negative impact on those people that need credit the most. Um, so we talked earlier, before the call, before we got started about today. Less than 1% of credit unions outstanding assets, um, are in credit cards. Do you think this is a. Ah. If you are being advising credence, is this an opportunity for them to step in and to gain share in the market if this were to actually happen?

Speaker A: Uh, yeah, absolutely. You know, here's the thing. A credit union is different from a bank. You mentioned rates earlier of, you know, the average credit union credit card rate versus a bank's average credit card rate, they're already lower. So changing from an average of 12% to an average of 10%, I think, you know, is okay. And the credit unions and the credit card programs can still be very profitable even at 10%. And that's one thing I also want to point to point out is that we shouldn't assume that moving to 10% is just going to make credit cards unprofitable. They, they will continue to be profitable. Um, they will have to be cleaned up. Right. There's accounts out there that, you know, you're just not going to want to take risk on anymore. But the programs will still be profitable. That anyone, any credit union of any size has access to many of the same benefits. I wouldn't say all, but many of the same benefits that are on the, you know, Chase, Sapphire or American Express. I mean, uh, a credit union has the ability to create a very strong product and it still be profitable Even if this 10% limit were put into place.

Speaker C: Any thoughts, David? I never really dug into this. I mean, clearly Navy Federal is one of our largest or, uh, our largest client. They represent the majority of the outstanding credit card balances in the credit industry. But not sure how many credit unions you get a chance to talk to. But I, I've never asked them. But based on what you just said, even without this cap, you would think more credit unions would be jumping into credit cards. Is there a reason why we don't see a larger balance from a credit card in credit cards? From a credit union perspective?

Speaker A: Yeah, I mean, it depends on the size. Credit cards do take a little bit more to manage. If you manage debit card today and you do it all in house, then adding credit card is very possible. Um, um, it's a daunting project though. A lot of, you know, there's, there's, you need some internal expertise. And I think that that's where a lot of people get caught up. You go to an agent bank program and you say, okay, I will sell a credit card just so I have that product. It has, uh, our credit unions brand on it, but it's issued by an elan or some other major agent bank program. Those are really easy to set up. And a lot of credit unions, um, and especially banks will go that route just so they have a product, but they're giving up so much revenue. And I would say that now I think it's just there needs to be more information about what's possible because now there are service providers that can help, uh, you build a Credit card very quickly. And you own the, you know, you own everything. You own the credit lines, you own the accounts, you own the relationships. You set your rate, you set your fees. And it can be done to where if you don't feel like you have internal support to support or the internal ability to support all of it, the service providers, and I won't name names, but there are service providers that will take on all of that for you. Um, so I think part of it is that offering a credit card is a little bit scary. Uh, I've launched a credit card for a community bank that didn't have one before, and I can tell you there's a lot of concerns around can we actually manage this? Can we be competitive? And, uh, you know, and yes, the answer is absolutely yes.

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Speaker C: So let's get back to the legislative side of things. So we've also seen some new legislation that would empower states to impose their own interest rate cap caps. Right. House Democrats, I think, put that forward in 2026. There's been lots of questions about it, concerns about this sort of patchwork approach. Is that something you think could actually occur and you think that's a bigger risk than the 10% rate cap?

Speaker A: Yes, it absolutely could occur. I mean, you have 50 more options for that, right? With the federal government, you only have one entire, uh, body that can pass something. But here you have 50 bodies that could pass any number of regulations. And I've, you know, I'm here in Arizona, and I think even Arizona is looking at this and it has, you know, Democrat and Republican support on a lot of these. So, yes, the, the risk is there that, you know, it would. Again, it would, it would have the same impact that we saw before, only it would be now at a state level. Right. So now you have a state where it is harder to get credit than if I just lived across the state line. You have a state where banks and credit unions are unsure whether they want to invest in or approve credit because they don't know how profitable that's going to be, um, I wasn't sure. You know, there's the ability, if you go across in multiple states, you can export other state laws as part of that. Um, maybe the idea is that that would be blocked. But if, if you could export rates, right. If you were a chase and you exported rates from another state into Arizona, let's just say as an example, now you have an advantage right now you have a more profitable card program. Because, you know, yeah, if I'm a Arizona community credit union, um, I'm limited in the amount that I can charge, which means I'm limited in the amount of rewards I can give. I'm limited on the number of programs, approvals I can give that. You have a chase, which is a national bank coming in, exporting rates, um, of um, you know, that exceed 20 or 30%. They give very strong rewards programs. And, and it brings up another point. I don't think consumers are, are that price sensitive when it comes to the interest rate. I think a lot of people apply for a credit card with the idea that they're going to pay it off. I think that, you know, you have a situation where they don't pay attention to the interest rate. They're more looking at rewards. What's the bonus offer? And so I think if states make their own laws, they're really creating a disadvantage not only for their consumers in that state, but for their community credit unions and community banks.

Speaker C: Do you see either the market or the regulatory threat causing product innovation? Do you think there'll be voluntary changes in rates? Do you think there's product innovation that'll happen? Because hey, look, there's nothing, like I said, it makes a great headline. Consumers are paying attention to it. Do you think some innovative company comes along and says, hey, I'm going to offer a product feature because I think I can grab market share by doing this?

Speaker A: Absolutely. Yes, definitely. So what, you know, part of this, you know, you talk about margins, right? Bringing down the cost and there's a lot of different ways to bring down the cost of the program. Right. And, and we're already seeing that happen. But something like this, even the conversation could speed that up and make card programs more efficient. Um, there's also, you know, I mentioned BNPL provider that launched a credit card with a 10% for one year intro rate. That's nothing new. In fact, it's not even as good as what's already out there, but it's a direct response to, to this legislation. So I, I do think we're going to See a lot of people um, responding to this in different ways. There's going to be innovations. Credit cards have been evolving, especially recently anyways, so we're going to see increased innovation as, you know as, as, as a way to, that, that banks and credit unions can try to differentiate their programs. We'll see new rewards options coming out and new ways to get incentives either from the merchants or maybe even the um. A lot of innovation is going to continue to occur. This 10%, you know, the conversation could push some of that, especially the, the margins, you know, kind of um, finding ways to cut expenses and, and be more competitive. But uh, doesn't change what's already happened.

Speaker C: What should you know, credit union leaders be asking themselves right now about credit, you know, profitability, risk based pricing, rewards compliance, how they communicate with their members, what's the advice to them?

Speaker A: Well, uh, I'll split this between credit unions that have a credit card and those who don't. Um, so if you have a credit card already, I think what we're talking about now, looking for ways to make that program more efficient, uh, and also streamlined. Right. Um, our research, we found that consumers want online applications or mobile. But online and mobile applications are where a vast majority of credit card applications are being submitted. Right. No longer in the branch or over the phone. So it's important to have the digital applications. It's important to find ways to make that approval as quick as possible. So um, instead of hey, submit it now and we'll let you know in 24 to 72 hours if you're approved and what your credit limited limit is, focus on getting that approval as fast and immediate as possible and then issuing. Right. Everything now if the instant is always better or very quick. So can you issue a digital card yet? You know, what do you need in place to be able to do that? Can they click a button to push it to their mobile wallet? These are all the kind of things right now that if, you know, really over the last few years have been becoming more common. But it's getting to where if you have a credit card and you're making a person wait days before the approval and then they have to wait more days before they get their card and then they can add it to a mobile wallet if they want to. Um, that's just it, it just is going to work against you. By that point they will have already applied for another credit card, gotten approval, gotten something they can use right away and your card's never going to get used. So I think if you have a credit Card focus on making approvals as quick as possible, and that will help tremendously and make you a lot more competitive. Um, then we're talking about the impact of revenue. I encourage even credit unions, as consumer friendly as they are, it's important to evaluate your fees because sometimes the fees are just so low they don't make sense. And I'll give you an example of foreign transaction fee. Typical is about 3%, right? If I use my card overseas, I'm gonna pay 3%. The credit union itself is paying one to one and a half percent for that transaction. But I see foreign transaction fees of 1%. And it's like, why even charge a fee at that point, right? So there, I think that there, there is, it makes sense sometimes to charge a fee because consumers expect to pay fees, charge a fee that covers the cost of that transaction, plus whatever the market will, will withstand. Because if you're just waiving fees and, and charging the least lowest fee in the market, but it takes you 10 days to get a card to the consumer because you're trying to keep, you know, you don't have the revenue to invest in those kind of things, then you really should, should look at ways to make the program more profitable and consumers will understand. Um, so that's, that's for people who already have a credit card if you don't have one. You know, I think it would be very tempting to look. Or if you have an agent bank program, I think those are very tempting. They're very fast to get up. They're immediate source of revenue. But you're, but by going with an agent bank program, you're really giving up a lot of opportunity and a lot of control. Um, so if you don't have a credit card today, I know that things like the 10% cap might make you think, well, there's impossible to make money, but credit cards are still very profitable. They're, you know, a strong product to offer to your members. And so I, I, I, uh, I encourage most credit unions that don't have their own credit card program today to really look into that. A lot of options. And I'm happy, you know, if anyone wants to talk, I'm happy to share those names. I don't want to share it now, but there are companies out there that can help you get up and running, take on a lot of the responsibility, so that as the program grows, you can take some of that responsibility back. I, um, think in most cases it makes sense for a credit union or a bank to own their own credit card program.

Speaker C: No, it makes a lot of sense, David. And I refer to it, at least we refer to here at lengthy the three Ps, right. Produce the right product, deliver it with the right process, and then price it correctly. Right. And that's, that's really, I think, where all product innovation starts. Right? Those three Ps. And I think this is going to drive more of that. And the focus and your comment on the credit unions, that there are some great providers out there that can provide some turnkey solutions. Certainly we looked at them and uh, our clients rely upon Lenki because we do that as well. Well, great, David, listen, thank you so much for joining us today. We really appreciate your time and your insights and thanks to our listeners. And if you haven't yet, be sure to subscribe so you never miss an episode of 22 Minutes in Lending. And we'll see you back here next time. David, thanks again.

Speaker A: Thank you.

Speaker B: Thank you for listening to the 22 minutes in lending podcast. We hope you enjoyed today's episode. You'll find links to any resources mentioned in the show notes. Um, if you're enjoying our show, please be sure to subscribe and leave us a five star review.