(Bloomberg) — President Donald Trump’s demand that credit card issuing companies cap interest rates at 10% for a year strikes at one of the banking industry’s crown jewels — a line of business they protect tooth and nail.
After a week of turbulent markets with announcements aimed at making homes more affordable, the president turned his attention to another consumer burden: the cost of carrying an outstanding credit card balance from one month to the next. This time, his social media message has put a number of card issuers, led by JPMorgan Chase & Co., Capital One Financial Corp., on edge. and Citigroup Inc., in the crosshairs.
Credit card interest rates — which have remained above 20% in recent years — have become a target of lawmakers from both parties, with bills emerging and meeting fierce resistance from the industry. Banking associations have made alarming predictions about what would happen if rates were drastically reduced, putting profitability at risk: Financially vulnerable Americans could lose access to credit and find themselves at the mercy of loan sharks and pawnshops.
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But in response to Trump’s call for interest rates to fall by Jan. 20, industry groups including the Bank Policy Institute and the Consumer Bankers Association struck a more moderate tone.
“We share the president’s goal of helping Americans access more affordable credit,” the groups said in a joint statement Friday night. “At the same time, evidence shows that a 10% interest rate cap would reduce the availability of credit and be devastating for millions of American families and small business owners who rely on and value their credit cards, the very consumers this proposal aims to help.”
For consumers on a tight budget who rely on cards for incidentals, the cost of maintaining an outstanding balance can be onerous. The average interest rate remained around 21% at the end of last year, according to the Federal Reserve. At this level, paying $10,000 over three years generates more than $3,500 in interest.
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By contrast, the rate on a typical 30-year fixed mortgage — another well-known consumer product — is just above 6%, according to data from Freddie Mac.
Banks have long argued that unsecured credit card debt needs high rates because of the inability to write off losses in the event of default: there is no house or car to repossess. In fact, after the financial crisis, default rates on credit cards soared to over 10%, while those on residential real estate loans remained below 3%.
But since then, credit card credit has become highly profitable. In 2024, JPMorgan said the net yield on its more than $200 billion in credit card loans was 9.73%. That represented most of the $25.5 billion in revenue from its credit card and auto finance services unit, although the bank also recorded about $7 billion in card-related loan losses.
After legislative initiatives stalled last year, it’s unclear how Trump would force lenders to cut interest rates in a matter of days, beyond using his political influence.
If a maximum limit were implemented, the impact on banks and consumers would be quite variable.
For riskier borrowers, banks would likely have to terminate or significantly restructure lines of credit, increase minimum monthly payments or add extra fees, the Bank Policy Institute wrote in an analysis last year. While he acknowledged the difficulty of making predictions, he said 2019 data collected by the Federal Reserve indicated that a 10% limit would have restricted credit lines to 14.3 million people and families.
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According to Himanshu Bakshi, an analyst at Bloomberg Intelligence, financial institutions specializing in this segment would be the most affected. These could include Capital One, a pioneer in direct mail, Synchrony Financial, a specialist in private label cards, and Bread Financial, whose customers tend to have lower incomes than those of the big banks.
A credit union trade association called a potential cap “devastating” for its members. “Institutions will not be able to offer credit cards to most consumers with a 10% rate,” said Scott Simpson, president of America’s Credit Unions.
Other options for dealing with a 10% cap include reducing rewards and restricting promotions, such as zero-interest periods or low rates, BPI said in its analysis. Banks could also increase annual fees, waive fewer penalties for late payments, or increase the costs of balance transfers or cash withdrawals.
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Banks may be able to make adjustments to shave a few percentage points off card interest rates, but reducing them to 10% would eliminate their profit margins, said Matthew Goldman, founder of Totavi, a consulting firm for electronic payments and other financial technology companies.
“A 10% limit would mean the end of credit cards for most consumers, except for those who need them least,” he said. For example, “those with an excellent credit history”.
Regulatory bullwhip effect
For bank shareholders, Trump’s sudden demand may come as a bit of a shock. The sector’s stocks have performed exceptionally well, driven by its nominees’ deregulation efforts — including the easing of capital rules and stress tests proposed to avoid a repeat of the 2008 financial crisis.
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The KBW Bank index, which tracks 24 of the largest banks, has risen nearly 40% since Trump’s election victory in November 2024, roughly double the pace of benchmark indexes that track the broader U.S. market. Many banks have continued the upward trend this year, with senior executives predicting, in private conversations, a significant increase in profits from their lending operations.
Interest rate caps have long been a topic of debate, with differences in each state’s usury laws historically encouraging many banks to set up locations in Delaware and South Dakota. Trump has addressed the issue and campaigned on promising to rein in credit card interest rates, but so far most of the discussion has taken place in Congress.
In 2019, Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez proposed a 15% threshold. Last year, Sanders teamed up with Republican Sen. Josh Hawley on a bill that proposed a 10% cap.
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Senate lawmakers even tried to include a similar limit in the so-called Genius Act, which regulated stablecoins and was signed into law by Trump in July, but the limits were not included in the final version of the bill.
Banks have considerable influence in the US Congress, with trade groups representing virtually every industry sector. When they identify a common threat, they can quickly come together and form a coalition of allies. To defeat a Biden administration initiative aimed at tightening capital rules, they recruited consumer rights advocates who feared it would tighten credit.
Last February, after Sanders joined forces with Hawley on his bill, a group of banking associations quickly responded with a joint public letter. Warning that Americans would lose access to credit cards, the group highlighted alternatives available in Hawley’s home state.
“One in nine Missourians now uses short-term loans, nearly double the national average,” the trade associations wrote. “Short-term loan companies in Missouri charge annual interest rates in excess of 300%.”
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