Banks warn Trump’s 10% credit card rate cap could slash lending

Major banks are preparing to challenge President Trump's proposal to cap credit card interest rates at 10%, arguing that the policy would force them to restrict lending and ultimately harm the consumers it aims to help.

The proposal, announced by Trump on Friday, sent shockwaves through the financial sector. Credit card stocks fell sharply on Monday, with companies like Capital One dropping 6.2% and Synchrony Financial falling 8.2%. JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America also saw declines ranging from 1.5% to 3.5%.

Background

Trump's call for a credit card rate cap comes as consumer debt has become a growing concern. According to data from the Consumer Financial Protection Bureau, average credit card interest rates have climbed significantly, with rates reaching as high as 20%, 30%, and even higher in recent years.

The idea of capping credit card rates is not new. Progressive lawmakers, including Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, have long pushed for interest rate limits on consumer credit. Trump's embrace of the proposal represents an unusual alignment between the administration and progressive figures on a consumer finance issue.

Key Details

Banks are now making their case against the cap, and their argument centers on economics rather than ideology. Financial institutions say they use higher interest rates to cover the cost of lending to riskier borrowers—those with lower credit scores or unstable income. If rates are capped at 10%, banks say they will have no way to offset the risk of lending to these customers.

"If the banks were actually forced to lower their credit card rates to 10%, certain borrowers would not qualify for credit cards. This would affect the economy and negatively impact the very people the policy is meant to help." – RBC Capital Markets analyst

The American Bankers Association has already warned that a 10% cap could limit credit availability and hurt small businesses and consumers seeking credit access.

The Implementation Challenge

Another major issue facing Trump's proposal is that enforcing a nationwide rate cap likely requires congressional action. An executive order alone may not have the legal power to force private lenders to comply with such a cap. This means the proposal faces significant hurdles before it could become policy.

Trump indicated the cap would take effect on January 20, but the practical and legal path to implementation remains unclear.

What This Means

If banks are forced to cap rates at 10%, they face a difficult choice: either accept lower profits or reduce the number of people they lend to. Industry analysts expect banks would likely choose the second option, tightening credit standards and approving fewer credit card applications.

For consumers, this could mean that people with fair credit or those rebuilding their credit history would struggle to get approved for credit cards. Those who do get approved might face other restrictions, such as lower credit limits.

The proposal also highlights a fundamental tension in credit markets. Higher interest rates protect lenders from losses when borrowers fail to repay. Remove that protection through a rate cap, and lenders become more cautious about who they lend to.

Banks argue this would be particularly damaging to lower-income Americans and those with credit challenges—the very groups that might benefit most from access to credit, even at higher rates.

As the banking industry mobilizes against the proposal, the coming weeks will show whether Trump can overcome the financial sector's resistance and navigate the legal requirements needed to implement such a dramatic change to how credit works in America.