For the past 15 years, Brian Kelly has helped travelers navigate the bewildering world of credit card and airline perks. A former recruiter for Morgan Stanley, he runs the Points Guy website, which has 11 million viewers each month.
Now, Kelly is worried. President Donald Trump is taking aim at the credit card industry. In mid-January he demanded a 10% cap on interest rates for one year.
Trump also targeted the interchange fees that businesses must pay to banks when customers use credit cards at checkout. He did so by endorsing legislation known as the Credit Card Competition Act, reintroduced this year by Senators Roger Marshall, a Kansas Republican, and Dick Durbin, an Illinois Democrat. The measure would require larger banks to let retailers bypass dominant networks operated by Visa Inc. and Mastercard Inc. for transactions. Lawmakers say it would enable competition and lower fees.
In a January conversation with Bloomberg's Claire Ballentine, Kelly gave his take on what it all could mean for customers. He also explained the possible reverberations of a cap for banks on retailers, airlines and the US economy. He has skin in the game. His website gets fees when visitors click on links to apply for credit cards it reviews. Kelly even pointed out a possible winner: so-called buy now, pay later companies such as Klarna and Afterpay, which let customers buy goods in installments, sometimes without paying interest. (They get fees from merchants.) The following interview has been edited for clarity and length.
CLAIRE BALLENTINE : What do you think of President Trump's proposal to cap credit card rates at 10%?
BRIAN KELLY : Like most people, I am waiting to hear details. In terms of the interest-rate cap, there will be unintended consequences as it relates to points. It almost seems like points are secondary when it comes to the effects that could wreak havoc on the economy. There are estimates that almost 80% of Americans would see a drastic reduction in their credit lines. A 10% interest rate is just not profitable for banks, and they would not lend unprofitably. People would then be spending less, and that would significantly impact the economy.
This is all said to be for affordability for consumers, but the fact of the matter is consumers will lose the ability to spend and to earn points.
CB : How will high-income consumers with good credit be affected?
BK : If your credit lines decrease, the immediate impact would be lower credit scores for a lot of people, since the second-largest aspect of your credit score is your credit utilization. That would harm your ability to get a mortgage, and you'd pay more in interest on your loans.
But I think there would be more competition between the banks to get their top spenders -- so rewards could get more lucrative for the top 5%, but the bottom 95% could lose rewards completely or see them diminish. I could see a scenario in which the banks really forget about anyone else and put all their attention to the people spending the most and paying off their bills.
CB : How about low-income customers with bad credit?
BK : If they lose their credit, they won't just say, "I don't need to spend money anymore." People will get into riskier and more expensive ways to get credit like payday loans. I'm not promoting credit card debt, but there is a reason people need credit. The core problem is that people aren't earning enough money and the cost of living is too high. Wage growth is what we should be focusing on.
CB : How would this affect the travel industry?
BK :Delta makes billions a year in profit from their Amex partnership. If 80% of Americans lose their credit lines, that would be a huge loss to Delta, and it would really shake the industry.
There would be huge reverberations. You could see higher airfares and canceled orders on new planes. If all this lucrative revenue goes away, the airlines are not going to simply say, "Well, we'll start losing money."
CB : What do you think about the Credit Card Competition Act?
BK : I've spoken out against this in the past. Even if you paid to have a rewards credit card, you could see your card stripped of points. It transfers money from consumers earning rewards to retailers. The retailers would win massively.
For consumers who earn rewards today, they should be aware of the ramifications. If you pay at a restaurant, you would have to argue about which network you want to run it on. It would create the potential of losing out on points, and it would be more hassle and frustration for the consumers.
You used to be able to earn points on debit cards, and they passed legislation to hurt the banks and help retailers. The banks will always find ways to make money, and consumers will lose out.
CB : How would this all affect buy now, pay later companies like Klarna?
BK : For sure, buy now, pay later could be a winner. I think credit card companies would begin offering buy now, pay later to get around any interest-rate legislation. If 80% of Americans lose traditional credit lines, there will be plenty of other ways to get credit, like BNPL.
I don't encourage consumers to get into debt and spend more than they are able to pay, but I understand the reality of Americans who may need to make a purchase. I think BNPL can be better than paying credit card interest.
At a high level, everyone should be trying to not get into debt.
CB : What, if anything, should you consider changing in terms of your portfolio of cards?
BK : I wouldn't make any rash decisions today. I don't think this is becoming law anytime soon, but we're living in unprecedented times. My advice would remain that there are lots of lucrative offers for consumers today.
I would always recommend diversifying your credit cards and having credit cards with different issuers. It would be easier to get credit today than if this becomes law. And while there is a 2- to 5-point ding to your credit score when you apply for new credit, that is quickly outweighed by having more credit.
CB : Are we at "peak" points? Is it possible that we'll look back and say this was as generous as points programs ever got?
BK : It's wildly lucrative today, and there are more ways than ever to get points. For instance, [financial technology company] Bilt just announced you can earn points on mortgages. There is no other country that comes close to [the US in] the amount of rewards options.
We're in the heyday of credit cards. The banks will give consumers thousands of dollars just for getting a new credit card, and you don't even have to spend that much to get these bonuses.
There are millions of points people. To take that away would have a dramatically negative effect on consumers. -- With Paige Smith
Ballentine covers finance for Bloomberg from New York.
