Trump credit card rate cap has unclear path, ‘devastating’ risks

Bank executives were sent scrambling over the weekend after President Donald Trump declared late Friday that American credit card companies would be subject to a 10% cap on the interest rate they can charge customers.

The move sent shares of large banks including Citigroup, JPMorgan Chase, Wells Fargo and Bank of America down between 1% and 4% in premarket trading Monday. Companies more tightly tethered to the card industry, like Visa, Mastercard and American Express, also fell. Capitol One, whose loan book is mostly from credit cards, sank 7% in premarket trading.

Trump proposed a one-year cap on interest rates starting Jan. 20. While it’s unclear exactly how that would be enforced, the industry’s message is clear: The plan would bring unintended consequences for consumers and the American economy.

The move would make large swaths of the credit card industry unprofitable, especially tied to customers with less-than-ideal credit profiles, according to banks and analysts. Rather than offer loss-making products to consumers, the industry would simply stop offering access to customers with subprime credit, along with a slew of other changes around card programs including scaling back rewards, insiders say.

Consumers would either spend less or rely on other forms of unsecured debt, they say.

“We cannot offer products at a loss; there’s no scenario where we would take our entire portfolio to 10%,” said a person with knowledge of the operations of a large bank, who asked to remain anonymous to speak candidly. “It’s not a stretch to suggest this will very quickly tank the economy.”

The industry’s trade groups issued a joint statement late Friday making their case.

“Evidence shows that a 10% interest rate cap would reduce credit availability and be devastating for millions of American families and small business owners who rely on and value their credit cards, the very consumers this proposal intends to help,” the trade groups said.

Complicating matters, it is unclear to bankers how Trump’s rate cap would take place. The most straightforward approach, through legislation in Congress, isn’t possible by the proposed Jan. 20 start date, according to said Tobin Marcus, head of U.S. policy at Wolfe Research.

Other enforcement means, through banking regulators including the Consumer Financial Protection Bureau, are also possible. But the Trump administration has repeatedly tried to shutter that agency, and the industry has had a successful run at defeating CFPB rules via the courts.

“I’m not aware of an authority that they can use to do this unilaterally in any kind of a sweeping way,” Marcus said.

“As far as I can tell, telling them they have until Jan. 20 is an attempt to create pressure and have them do it voluntarily,” he said.

This story is developing. Please check back for updates.