Shares of US banks and credit card companies fell across the board after Trump proposed capping credit card interest rates at 10%, amid concerns that it could make it harder for consumers to access credit, impact spending, and drag down the broader economy.
On January 13, 2025, at 2:55 PM, CNBC reported that: US bank executives scrambled to cope with the chaos that ensued over the past weekend. Following President Donald Trump's late Friday night announcement that U.S. credit card companies would be capped at a rate of 10% on the interest rates they could charge customers,
The measures dragged down the share prices of major banks on Monday. Shares of Citigroup, JPMorgan Chase, Wells Fargo, and Bank of America fell by about 1–3%, while companies heavily reliant on credit card business like Visa, Mastercard, and American Express also declined. Capital One, whose loan portfolio is largely derived from credit cards, saw its share price plummet nearly 7%.
Trump proposed limiting interest rates for one year, starting January 20th. While it remains unclear how this would be enforced, the financial industry has signaled that such a measure could lead to unintended consequences for consumers and the overall U.S. economy.
Banks and analysts specify that Setting a 10% interest rate cap would result in losses for many segments of the credit card business, particularly for customers with low credit histories. Currently, the average credit card interest rate nationwide is 19.7%, according to a weekly survey by Bankrate.com, while subprime and merchant-specific cards often face even higher interest rates.
Instead of offering unprofitable products, the industry is likely to discontinue issuing cards to subprime customers and reduce the benefits and rewards of credit card programs. Industry sources. specify that Consumers may resort to spending less or relying on other forms of unsecured debt, which in many cases have higher interest rates than credit cards.
A high-ranking source at a major bank. said “We cannot offer products that are losing money. There’s no way we would reduce the entire portfolio to 10%… It’s not an exaggeration to say that this could drag the economy down rapidly.”
KBW analysts, led by Sanjay Sakhrani and Chris McGratty. It was stated in an analysis dated January 11th that: Slower spending will impact businesses such as airlines, retailers, and restaurants, which may have to compensate for lost credit card revenue by raising prices on goods and services.
A joint statement from a financial industry association was released late Friday to oppose the measure. They stated that evidence clearly shows a 10% interest rate cap would reduce access to credit and severely harm millions of American families and small business owners—the groups this measure is intended to help.
This isn't the first time the credit card industry has faced the issue of price controls. Last year... Senators Josh Hawley of Missouri and Bernie Sanders of Vermont have previously proposed legislation to limit credit card interest rates to 10% for five years, although the bill remains stalled in Congress.
The study was published on Monday. By the Electronic Payments Coalition specify that If an interest rate cap were set at 10%, card issuers could close nearly 90% of user accounts, or approximately 175 million people, with the majority of accounts belonging to those with credit scores below 740 being cancelled.
However, banks remain unclear how Trump will enforce this measure. The most straightforward way is to pass legislation in Congress, which cannot be done by the January 20th deadline, according to them. Tobin Marcus, head of US policy at Wolfe Research.
Another option might be to use a financial regulatory agency such as the Consumer Financial Protection Bureau, but the Trump administration has attempted to dissolve that agency several times, and the industry has successfully challenged CFPB rules in federal court.
“I don’t see any authority for the government to unilaterally enforce this on a broad scale… The January 20th deadline seems like an attempt to pressure the private sector into voluntary compliance.”
Although the enforcement mechanisms are not yet clear, credit card companies face the risk that interest rates may be suppressed in future negotiations with the government. McGratty from KBW say Questions were raised as to whether the 10% was merely a starting offer, as the gap between 10% and the rate the company currently charges is still very wide.
Americans collectively held $1.23 trillion in credit card debt as of the end of the third quarter of last year, according to data from the Federal Reserve Bank of New York. This debt has continued to rise as many consumers have already used up their savings accumulated during the COVID-19 pandemic.
refer : www.cnbc.com
Read related news
- "US bank and financial stocks" plummeted after Trump urged capping credit card interest rates at 10%.
- Trump threatened credit card providers, saying they could be breaking the law if they don't lower interest rates to 10% by January 20th.
