Legislation required: Dimon at the WEF in Davos, Switzerland. The JPMorgan CEO says capping credit card interest rates would remove credit from 80% of Americans, and that is their back-up credit. — Bloomberg
DAVOS: JPMorgan Chase chief executive officer (CEO) Jamie Dimon warns that a proposal to cap credit card interest rates would amount to economic disaster, while US President Donald Trump doubled down on the idea and says he is asking Congress to approve the move.
Trump, under pressure to address voters’ cost-of-living concerns ahead of this year’s congressional elections, called for the cap earlier this month, without detailing how the plan would be implemented.
“It would remove credit from 80% of Americans, and that is their back-up credit,” Dimon, longtime chief of JPMorgan and Wall Street’s most influential banker, said at the World Economic Forum (WEF) in Davos.
Trump reiterated his call to cap interest rates in a separate address on Wednesday at the WEF, an annual gathering of global political and business leaders.
“I am asking Congress to cap credit card interest rates at 10% for one year,” Trump said. “One of the biggest barriers to saving for a down payment has been surging credit card debt. The profit margin for credit card companies now exceeds 50%, one of the biggest.”
Banking industry bodies have pushed back strongly against the move, arguing it would limit credit access for everyday consumers.
Meanwhile, Wall Street analysts said such a measure would require legislation and has slim odds of passage, with Democrats and Republicans divided over supporting it.
“I think we should test it,” Dimon said. “The government can do it, they should force all the banks to do it in two states – Vermont and Massachusetts – and see what happens.”
Though Dimon did not explain why he picked those two states, the idea drew laughs from the crowd. Left-leaning Senators Bernie Sanders and Elizabeth Warren, who represent Vermont and Massachusetts, respectively, have both advocated for legislation that would cap credit card interest rates.
“People crying the most will not be the credit card companies. It will be the restaurants, retailers, travel companies, the schools, the municipalities, because people will miss their water payments, this payment and that payment,” Dimon said.
Trump, who called on companies to comply by Jan 20 in a post on his Truth Social social media platform, blindsided the industry and sent bank stocks tumbling as investors baulked at the prospect of one of the sector’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 credit rates. That makes it highly unlikely we’ll see a 10% cap put in place anytime soon,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
“It does give him an opportunity to point the finger at Congress if it doesn’t happen.”
The S&P 500 Banks Index that tracks large-cap lenders was last up 1.2% on Wednesday.
Major Wall Street banks are pushing back on some of Trump’s ideas for lowering the US cost of living ahead of mid-term elections and suggesting alternatives in an effort to shape policy, Reuters reported, citing sources.
“We’re going to give them at one point real analysis on the effects of this. We’ve given some but not a lot,” Dimon said.
Last week, JPMorgan’s chief financial officer Jeremy Barnum was asked in a post-earnings call if the company would pursue legal action against rate caps.
“If you wind up with weakly supported directives to radically change our business that aren’t justified, you have to assume everything is on the table,” he said.
Analysts have said card providers could make conciliatory gestures with innovative offerings such as lower rates for certain customers, no-frills cards that could charge 10% but have no rewards, or lower credit limits.
Dimon’s remarks echoed the views of other top banking CEOs. In an interview with CNBC from Davos, Citigroup CEO Jane Fraser said earlier this week she does not expect Congress to approve caps on credit card interest rates. — Reuters
