The US President’s call for a 10% cap on credit card interest rates sent financial stocks sharply lower on Monday. Capital One dropped 6% while Synchrony Financial tumbled more than 8% in trading. Junior finance analysts at Cyrosalnix break down how this proposal disrupts industry economics and poses a threat to credit availability.
Sector-Wide Selling Pressure
Citigroup lost almost 4% as major banks saw widespread declines. JPMorgan Chase and Bank of America each fell 2% on the news. Even payment processors Visa and Mastercard declined a 2% fee despite not incurring capital risk.
American Express slumped 4% while Wells Fargo declined about 2%. The sector-wide reaction reflects concerns extending beyond immediate profits to fundamental questions about consumer lending models. Implementation details remain unclear, although the administration aims for this to take effect on January 20, 2026.
Current Rate Environment
Credit card interest rates currently average around 22.30% according to Federal Reserve data. This represents a significant increase from 16.28% in 2020. Store credit cards charge even higher rates, often exceeding 30%.
The gap between current rates and the proposed 10% cap creates enormous pressure on issuer economics. Card debt is unsecured, meaning no collateral backs these loans. This risk profile traditionally justifies higher interest rates compared to secured lending.
Delinquency Trends Drive Pricing
About 2.98% of credit card balances are currently delinquent compared to under 2% in 2021 and 2022. Pandemic-era stimulus and forbearance programs temporarily suppressed late payments. Rising delinquencies prompt issuers to factor in elevated default risks.
Elevated charge-offs represent another reason for today’s higher rates. Credit card debt lacks collateral recovery options, unlike mortgages or auto loans, which offer collateral as a means of repayment. Losses from defaulted accounts are distributed across the broader customer base through pricing adjustments.
Credit Contraction Warnings
Five banking trade groups issued immediate warnings about reduced credit availability under rate caps. The Electronic Payments Coalition study suggests issuers would close accounts for nearly 90% of users. This potentially impacts 175 million Americans currently holding cards.
According to industry research, most accounts with credit scores below 740 would likely face closure. Issuers cannot offer products at a loss, forcing restrictions on higher-risk borrowers. These customers generate profits subsidizing rewards programs for prime borrowers.
Rewards Programs Face Elimination
The proposed cap threatens the elimination of popular cashback and travel rewards programs that attract premium customers. Banks fund these incentives through interest charges and merchant fees collected from all cardholders. Without adequate revenue margins, issuers cannot sustain generous rewards structures that drive customer loyalty and spending.
Consumer Impact Varies
Consumers maintaining balances could see substantial savings from rate caps. A person with a $5,000 balance at 24% pays about $100 monthly just in interest. At 10%, that drops to roughly $41 monthly, freeing up $59 for other uses.
Vanderbilt University analysis suggests households could save approximately $100 billion annually in interest payments. Americans carry a collective credit card debt of $1.23 trillion, making even small rate changes economically significant. However, these savings only benefit consumers who retain access to credit.
Alternative Lending Benefits
Buy-now, pay-later platforms stand to benefit from traditional credit restrictions. Affirm stock rose 4% on Monday as analysts projected significant opportunities for fintech providers. Mizuho analyst Dan Dolev highlighted Affirm as positioned to capture displaced consumers.
These platforms operate outside traditional banking regulations with different fee structures. While marketed as consumer-friendly, they lack regulatory protections governing credit cards. Dispute resolution mechanisms and consumer safeguards differ significantly from traditional products.
Political Dynamics Add Complexity
The proposal resurrects campaign promises and builds on bipartisan interest in rate caps. Senators Bernie Sanders and Josh Hawley introduced similar legislation last year with temporary 10% caps. That bill stalled in Congress without meaningful progress.
Politicians from both parties criticize high credit card rates as exploitative of consumers. Average rates near modern highs provide political ammunition for consumer protection advocates. However, gaps between political appeal and economic reality create implementation challenges.
Enforcement Questions Remain
Without legislation, the enforcement mechanisms remain unclear under current legal frameworks. The administration suggested legal violations for non-compliance, but hasn’t specified applicable laws. Banking regulators, including the Consumer Financial Protection Bureau, could potentially play enforcement roles.
The CFPB was created in 2010 to protect consumers from fraudulent or predatory practices. Republicans have long accused the agency of overreaching, and the current administration has halted much of the watchdog work. Reviving enforcement through this agency faces political obstacles.
Banking Earnings Face Scrutiny
JPMorgan recently agreed to acquire Goldman Sachs’ Apple Card portfolio in a significant deal. The nation’s largest bank reports earnings on January 13, where executives will face questions about navigating proposed changes. Analysts will probe management views on potential policy implementation and portfolio impacts.
Fourth-quarter earnings season kicks off with major banks reporting this week. The credit card cap proposal adds uncertainty to an already complex regulatory environment. Banks expected favorable conditions, but now face potential profit headwinds from consumer lending restrictions.
