A seismic proposal from former President Donald Trump to impose a 10% cap on credit card interest rates, effective January 20, 2026, has sent ripples of concern through global financial markets, forcing banking institutions to meticulously reassess their risk models and revenue projections. This audacious call, disseminated via a Truth Social post, signals a sharpened focus on consumer affordability ahead of future elections, but its potential implementation raises profound questions about the stability of the credit ecosystem and access to capital for millions. Should this cap materialize, it would represent the lowest average credit card interest rate observed in the United States since at least 1994, a stark contrast to the prevailing average of 19.65% and the even higher 30.14% typically seen on store-branded cards, according to recent data from Bankrate.
The immediate mechanism for enacting such a sweeping change remains unclear, whether through executive action or a renewed push for congressional legislation. Similar attempts have been made in the past, notably a February 2025 bill proposed by Senators Josh Hawley (R-Mo.) and Bernie Sanders (I-Vt.), which ultimately failed to gain legislative traction. However, the current political climate, marked by persistent inflation and a heightened cost-of-living crisis, lends new urgency to populist economic measures. For credit card issuers, the prospect of such a drastic reduction in lending rates threatens to severely compress their net interest income (NII), a critical measure of profitability, inevitably triggering a negative reaction in stock valuations and investor confidence.
The impetus behind such a radical proposal stems from a genuine and growing concern over the burden of consumer debt. Card lenders collectively generated a record $130 billion in credit card interest and fees in 2022, a figure that underscores the substantial revenue stream at stake. This was against a backdrop where the average American cardholder carried a balance exceeding $5,000, as estimated by the Consumer Financial Protection Bureau in 2024. The latest data from the New York Federal Reserve indicates that total U.S. credit card balances surged to $1.23 trillion in the third quarter of the preceding year, an increase of $24 billion from the prior quarter, highlighting an accelerating reliance on revolving credit. Alarmingly, delinquency rates for subprime credit card borrowers remain elevated at 16.3%, according to Federal Reserve data, even as broader debt repayment behaviors have shown some marginal improvement. This segment of the population, often the most vulnerable to economic shocks, stands to either gain significant relief from lower rates or face complete exclusion from the formal credit system.
While consumers might initially welcome the prospect of dramatically lower interest rates, the economic consensus points to a complex and often counterintuitive outcome: a reduction in credit availability, particularly for those deemed higher risk. Financial theory dictates that when market-driven risk pricing is artificially constrained, lenders typically respond by either curtailing their credit supply or entirely withdrawing access for segments of the borrowing population. This phenomenon, widely documented in economic research, suggests that a rate cap, intended as a short-term affordability "Band-Aid," could have severe long-term consequences. As Brian Jacobsen, chief economic strategist at Annex Wealth Management, articulated, such a cap "would result in a dramatic reduction in access to credit, especially to younger and less affluent individuals."
Empirical evidence from both domestic and international contexts supports this apprehension. A 2023 study co-authored by academics and a former member of the Federal Reserve System’s Board of Governors examined the effects of a 36% cap on many consumer loans implemented in Illinois in 2021. The findings revealed a significant decrease of 38% in loans to subprime borrowers within six months of the cap’s imposition, illustrating a direct causal link between rate limits and reduced access for riskier clientele. On a global scale, a World Bank working paper analyzing outcomes in diverse economies like Cambodia and the U.K. found that credit card companies frequently circumvent the spirit of rate caps through the introduction of various fees and commissions, or by simply withdrawing from segments of the market deemed unprofitable. This often pushes vulnerable borrowers towards less regulated and more costly informal lending channels, exacerbating their financial precarity rather than alleviating it.
The direct financial ramifications for major credit card issuers would be substantial. Companies like American Express, JPMorgan Chase, and Capital One Financial — especially following its summer 2025 acquisition of Discover Financial Services — rely heavily on interest income from their revolving credit portfolios. American Express, for instance, reported a robust $15.5 billion in net interest income in 2024, an 18% increase from 2023, driven by higher interest rates, increased revolving balances, and a strategic shift towards a younger, loyalty-focused cardholder base. Capital One similarly posted $31.2 billion in net interest income in 2024, a $2 billion rise primarily attributed to higher average loan balances and improved margins in its credit card segment. A 10% cap would fundamentally alter these business models, necessitating a complete re-evaluation of their lending strategies, potentially leading to tighter underwriting standards, reduced credit limits, and a focus on higher-FICO score clientele. Investors, therefore, are keenly watching for any developments, with upcoming earnings reports from these institutions expected to provide further insights into their preparedness for such a contingency.
The banking industry has already voiced strong opposition. The Bank Policy Institute, in a recent statement, warned that "if enacted, this cap would only drive consumers toward less regulated, more costly alternatives." The American Bankers Association echoed these sentiments when the Hawley-Sanders proposal first surfaced, emphasizing the vital role that risk-based pricing plays in maintaining a healthy and accessible credit market. While individual financial institutions, such as JPMorgan Chase, have largely refrained from direct commentary, often citing quiet periods ahead of earnings announcements and directing inquiries to industry trade groups, the collective concern is palpable.
This latest move by the former President also fits into a broader pattern of recent policy pronouncements aimed at addressing economic anxieties. Just days prior, he targeted the housing market, pledging to "immediately take steps to ban large institutional investors from buying more single-family homes" and urging Congress to codify the measure. Concurrently, he indicated plans to influence mortgage rates by "instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS." These pronouncements underscore a strategic pivot towards populist economic messaging, particularly on issues of affordability, a vulnerability for the Republican party which has seen its favorability decline in recent polls. This shift is notable, especially considering a previous stance where the former President dismissed affordability concerns as a "hoax" despite consumer price index readings showing persistent, albeit moderated, year-over-year price increases.
The political calculus is clear: controlling the "affordability narrative" is seen as crucial for future electoral success. As Peter Atwater, president of Financial Insyghts, observed, investors must now take these proposals seriously, driven by the political imperative to address voter concerns. The implications of a credit card interest rate cap extend far beyond the balance sheets of financial institutions. It touches upon fundamental economic principles of risk and reward, the equitable distribution of credit, and the potential for regulatory overreach to inadvertently harm the very consumers it seeks to protect. As the political rhetoric intensifies, the financial sector braces for a potentially transformative challenge, one that will test the resilience of its business models and reshape the landscape of consumer credit for years to come.
