Why a proposed 10% cap on credit card interest is rattling big banks
Good morning. President Donald Trump’s proposal to temporarily cap credit card interest rates has both supporters and critics. In a social media post on Jan. 9, Trump called for a one-year cap on credit card interest rates at 10% starting Jan. 20, reviving a pledge from his 2024 campaign as the administration seeks to demonstrate progress on affordability.
Supporters argue a temporary cap could ease pressure on households facing average APRs above 20%.
But economists and bank executives warn that the move requires approval from Congress and that the policy could have unintended consequences by making banks more reluctant to offer credit, thus slowing down consumer spending.
“An artificial cap on credit card interest rates is likely to backfire on the White House by making credit less accessible to the cash-strapped households that most need it,” Columbia Business School economics professor Brett House told me.
Earnings call discussions
The proposal was a major topic this week during the earnings calls of America’s big banks. Executives broadly agree a 10% cap would reduce access to credit for higher-risk borrowers and could have adverse effects on consumer spending and growth, Morningstar director Sean Dunlop told me.
“I think Jane Fraser, CEO of Citigroup, provided the most context among the firms I cover, alluding to a previous time when President Carter tried to impose interest rate ceilings—and the administration had to abandon its efforts within two months, given the severity of the economic impact,” Dunlop said.
Fraser noted that consumers spend roughly $6 trillion annually on credit cards and carry about $1.2 trillion in balances. She warned that making card products unprofitable would curtail spending on those cards as credit availability declines, he said.
Other CEOs and CFOs had similar concerns:
— JPMorgan Chase CFO Jeremy Barnum said the cap would likely reduce access to credit rather than help consumers. He argued that intense competition already compresses margins and that price controls would force broad lending cutbacks — especially for higher-risk borrowers.
— Bank of America CEO Brian Moynihan said the industry is committed to affordability but argued a cap would tighten credit. “You’re going to get restricted credit, meaning less people will get credit cards, and the balance available to them on those credit cards will also be restricted,” he said.
—Citi CFO Mark Mason called affordability an important issue and said Citi looks forward to working with the administration on a constructive solution. “I also say that an interest rate cap is not something that we would or could support,” he said, arguing it would restrict access to credit.
Dunlop said if the proposal is implemented, banks would likely respond by tightening lending standards, competing more aggressively for higher-FICO borrowers, and seeking to offset lost interest income through higher fees.
Higher interest rates compensate lenders for nonpayment risk; without that flexibility, issuers would narrow underwriting and concentrate lending among the least risky borrowers. “For issuers that extend credit to lower-income borrowers, like Bread, the credit card economics simply don’t work out at lower interest rates, and they’d be forced to shrink their lending volumes dramatically,” Dunlop said.
The debate highlights the tension between lowering borrowing costs and preserving access to unsecured credit — a balance policymakers must weigh as affordability concerns collide with market realities.
Have a good weekend.
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Sheryl Estrada
sheryl.estrada@fortune.com
This story was originally featured on Fortune.com