America
JPMorgan CEO Dimon Warns Credit Card Rate Caps a ‘Disaster’
Charging a proposal that would limit the interest rate on credit cards to 10 per cent as “economic disaster,” JPMorgan Chase CEO Jamie Dimon told shareholders at the company’s annual meeting this month he doesn’t believe it will get shut out of influence in any Democratic transaction, “even if there is a swearing-in party.” Addressing the World Economic Forum in Davos, Dimon said that such a move would compel banks to cut off 80% of Americans from loans, especially those who have lower credit scores. Though the plan’s goal is to save consumers billions of dollars, banking executives and experts caution that it could backfire by leaving families without a financial cushion and harming local businesses, which depend on consumer spending.
The chief of America’s biggest bank has sounded the alarm about a new proposal to restrict credit card interest rates. At a major gathering in Davos, Switzerland, the chief executive of JPMorgan Chase, Jamie Dimon said that limiting rates to 10% would be catastrophic for the country’s economy. He said that if this regulation becomes law, the banks will no longer be able to afford to take a risk when lending money to most people. Dimon speculates that up to 80% of Americans may lose all access to their credit cards.
The plan, proposed by President Donald Trump, would reduce the cost of borrowing for one year. Today, some people pay more in interest. Try to make life more affordable and, says Dimon, the result will be the opposite. He says that rather than helping ordinary people save, the proposal will only compel banks to shut down accounts for everybody who is not regarded as an extremely safe borrower.
Who Will Feel the Most Pain?
The most likely people to get hurt, banking experts say, are those with average or below-average credit scores. Industry groups say credit cards for nearly 90% of current holders could be restricted or cancelled if the 10% cap is enacted. That’s because banks charge higher interest rates to make up for the cost when some people don’t repay their debts. If they lack that income, banks say, they can’t afford to extend credit to the vast majority of the public.
Dimon also noted this wouldn’t only damage the banks. If people can’t charge things, they won’t spend money at local restaurants and shops, or on travel, he said. He cautioned that families could lack enough money to cover important payments, such as those for water bills or school fees, now that they don’t have their credit cards as a safety net. This could have a domino effect that does far-reaching damage to small businesses and local communities all over the country.
A Rare Political Alliance
While the banking industry has opposed the plan, it has also found some unlikely support in Washington. In each case, President Trump has contacted Democrats and expressed an interest in discussing working together on the concept, including with Senator Elizabeth Warren. It is a rare agreement between political opponents when it comes to politics, leaders from both sides of Parliament want to do what they can for families who are struggling with the increasing cost of living. Some research indicates a 10 per cent cap could save Americans as much as $100 billion annually in interest.
Still, many in Congress remain sceptical. Some are concerned that the plan has “negative secondary effects” which we haven’t yet considered. Dimon also indicated that the government should experiment with this idea in one or two states to see what happens before instituting it as a law for the entire nation. For now, the plan’s future is in doubt, but there was no mistaking that the big banks and government are on a collision course.
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