(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Gabriel Rubin

WASHINGTON, Dec 17 (Reuters Breakingviews) - P resident-elect Donald Trump found one policy promise that’s at odds with Wall Street. Despite quieting fears over personnel choices and weighing regulatory cutbacks, he drew howls from finance’s Washington trade groups over a campaign-trail vow to cap credit card interest rates. The highest charges in decades amid rising delinquencies make it an appealing idea. But any plan leaving costlier products untouched could end up costing poorer borrowers more.

Trump floated the idea of a temporary cap in September. It’s akin to other far-reaching but sparsely detailed proposals put out on the stump, like ending taxes on overtime pay or making auto insurance premiums deductible. Pushback from trade groups representing credit card issuers has been fierce. The American Bankers Association said the plan would increase demand for “payday lenders and loan sharks.”

Yet the timing is apt. U.S. credit card debt topped $1 trillion in 2023, according to the Federal Reserve, while average interest rates have soared to over 21%. Tightening monetary policy isn’t the whole explanation: charges were lower in the 1990s, when the central bank’s policy rate was about where it is now. Delinquencies are at the highest level since 2011, when consumers were still digging out of the hole of the financial crisis.

There's bipartisan support to tackle this. Senators Bernie Sanders and Elizabeth Warren would be thrilled to help Trump cap rates. But they likely have an eye on doing so for many more types of consumer credit, to head off the entirely plausible spillover issue highlighted by trade groups if a leaner credit-card industry turns away poorer borrowers. After all, small-dollar lenders overwhelmingly serve customers with the weakest credit scores, and they seemed to see a bump in popularity in the wake of the 2008 credit crunch.

Problem is, Trump has evinced no interest in capping usurious 400% annual rates on payday loans. His first administration rolled back modest regulations on the industry. There’s also no Republican support for public solutions, like offering low-cost loans at post offices, long favored by Warren.

Reform may also anger vocal constituencies. Credit card rewards programs benefit well-heeled borrowers, who collect airline miles and cash-back points that are effectively funded by worse-off borrowers paying interest on accumulated debt, research shows.

Moreover, Trump’s consigliere of government cost-cutting, billionaire Elon Musk, wants to abolish the consumer finance agency tasked with writing and enforcing regulations like caps on bank overdraft fees. It hardly seems a prelude to a comprehensive push to end exploitative lending.

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CONTEXT NEWS

Independent Senator Bernie Sanders in November said he looked forward to working with U.S. President-elect Donald Trump on a campaign proposal to cap credit card interest rates at 10%.

Under President Joe Biden, the Consumer Financial Protection Bureau capped credit card late fees and in March released a rule to cap bank overdraft fees, though that regulation remains in limbo due to pending litigation in federal court.

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(Editing by Jeffrey Goldfarb and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on gabriel.rubin@thomsonreuters.com))