NEW YORK — The global financial corridor from Wall Street to the headquarters of the nation’s largest lenders is in a state of high alert following President Donald Trump’s demand for a one-year, 10% cap on credit card interest rates. In a move that has sent shockwaves through the markets, the banking industry, credit card issuers, and institutional investors have issued a rare, unified warning: the proposed cap could “upend the basic economics” of the American financial system.
Markets React with Sharp Sell-Off
The immediate reaction from Wall Street was swift and clinical. Shares of major credit card issuers, including American Express, Capital One, and Synchrony Financial, tumbled between 4% and 7% within hours of the announcement. Diversified banking giants like JPMorgan Chase and Bank of America also saw significant declines.
Investors are pricing in a potential $100 billion annual revenue hit to the banking sector if the cap were to be enforced. Analysts at Wolfe Research and Piper Sandler expressed deep skepticism regarding the proposal’s feasibility, noting that a 10% cap is far below the current national average of roughly 21% to 25%.
The Banking Industry’s “Devastating” Forecast
A coalition of the nation’s most powerful banking trade groups—including the American Bankers Association (ABA), the Bank Policy Institute (BPI), and the Consumer Bankers Association (CBA)—issued a joint statement late Friday night. The tone was one of grave concern rather than cooperation.
“A 10% interest rate cap would be devastating for millions of American families and small businesses,” the joint statement read. “Evidence shows this would drastically reduce credit availability, forcing lenders to tighten standards so strictly that only the most affluent consumers would qualify for a card.”
JPMorgan Chase CFO Jeremy Barnum was even more direct during a call with reporters, stating that “everything is on the table” regarding a potential legal challenge to block the move. He argued that, instead of making credit cheaper, the policy would simply “reduce the supply of credit,” leaving lower-income and subprime borrowers with no choice but to turn to “less regulated, more costly alternatives” such as payday lenders or pawnshops.
The industry’s pushback centers on the “risk-based pricing” model that has defined modern lending. Credit card companies argue that the interest rates they charge are not arbitrary “ripoffs”—as the President suggested—but are calculated to cover the costs of:
- Default Risk: The statistical likelihood that a portion of borrowers will not pay back their debt.
- Funding Costs: The interest the banks themselves must pay to borrow the money they lend to consumers.
- Operational Overhead: The cost of fraud protection, customer service, and rewards programs.
According to Hargreaves Lansdown, a 10% cap would fall below the “break-even” point for many consumer portfolios. If banks cannot price for risk, they will likely respond by:
- Closing Accounts: Terminating cards for any borrower with a credit score below “prime” levels.
- Slashing Credit Limits: Reducing the amount of available capital for existing cardholders.
- Eliminating Rewards: Scrapping cash-back, miles, and points programs that are funded by interest and interchange income.
A Collision Course with Federal Law
While the President set a deadline of January 20 for the cap to take effect, legal experts and financial lobbyists point out significant hurdles. The Consumer Financial Protection Act explicitly prohibits the federal government from setting interest rate caps via executive fiat.
“The President doesn’t have a ‘dial’ on his desk to turn down interest rates,” noted one analyst from Morningstar DBRS. Implementation would require a significant act of Congress—a path currently fraught with political tension. While populist figures like Sen. Josh Hawley (R-MO) and Sen. Bernie Sanders (I-VT) have supported similar caps in the past, mainstream Republicans and the “pro-business” wing of the party remain skeptical of such heavy-handed price controls.
Conclusion: A Battle of Will vs. Math
As the January 20 deadline approaches, the standoff is shaping up to be a defining conflict between populist politics and the mathematical realities of the private banking sector. While the White House frames the 10% cap as “affordability” for the working class, Wall Street frames it as a “math problem” that will lead to a credit crunch unseen since the 2008 financial crisis.
For now, the message from the industry is clear: they will litigate, they will lobby, and if forced, they will simply stop lending.
Sources and Links
- PBS News: Banks balk as Trump pushes for 1-year, 10% cap on credit card interest rates
- CNBC: JPMorgan Chase says banks could fight Trump credit card rate cap
- Associated Press: Wall Street executives warn Trump: Stop attacking the Fed and credit card industry
- America’s Credit Unions: 10% Credit Card APR Cap Would Harm Consumers
- Washington Post: Banks criticize Trump’s push for 10 percent credit card interest rate cap
- Payments Dive: Trump proposes card rate cap; banks eschew idea
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