How Trump’s 10% credit cap would hit the payments industry | PaymentsSource

• Key insights: A 10% interest-rate cap could reduce lending volume and earnings for payment companies.
• What’s at stake: Credit card debt is at record highs, with consumers taking on debt for everyday purchases.
• Forward look: Issuers may tighten lending and increase fees. 

President Donald Trump’s weekend calls to cap credit-card interest rates at 10% would make a major dent in credit-card company earnings, and comes at a time when American consumers are carrying more debt than ever.
The economic impacts to credit-card issuer models would be “quite meaningful,” Keefe, Bruyette & Woods analysts said in a research note. 

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KBW estimated that earnings per share for credit-card issuers would be cut by anywhere between 25% and 250%, with American Express at the low end, Bread at the high end and Capital One and Synchrony in the middle.

The underlying challenge

Consumers have an increasingly heavy debt load, with Americans now carrying $1.21 trillion in credit card debt, according to Academy Bank research released on Monday.

At the same time, median credit card interest rates have reached 25.3% and the average credit card user has a $5,595 balance, the bank said. 

Eighty one percent of American adults hold at least one credit card and the average adult holds seven, Academy Bank reports. Thirty five percent of users with revolving debt expect to carry balances indefinitely and 73% of card balances stem from basic expenses such as car repairs, medical bills and routing costs rather than discretionary spending.

“There is certainly an element of mass appeal to limiting credit-card interest rates,” Aaron Press, research director at International Data Corp., told American Banker. “Card balances carry some of the highest interest rates of any mainstream lending options, and there is a significant population of consumers struggling with credit card debt.”

But placing an arbitrary limit on interest rates in any context opens up a range of issues, Press said. “Notably, reducing the ability to set interest rates would likely result in sharp reductions in the availability of credit across the board,” Press said, adding reducing available credit would drive down consumer spending power and create significant challenges for the economy.  “This would be especially dramatic for small businesses, middle class workers, and sub-prime customers.”

Cratering loan volume

KBW’s analysis assumes average portfolio yields get cut by 30-50% and loan growth goes to 0% in 2026, with some cost offsets such as marketing expenses and operational expenses. “This is a one-year impact and obviously we are making a lot of assumptions that probably can distort what might be the real impacts. The big question is if this cap stays for longer than a year,” KBW said. 

The impact to banks is more manageable, though still high, according to KBW. “Credit card lending remains a key source of growth for many universal and select super-regional banks and the potential imposition of a 10% cap on yields would likely weigh on both the returns and the near-term growth outlook for the business,” KBW said.

There are likely to be unintended consequences, in particular the availability of credit to a segment of the consumer that the proposal is designed to protect, according to KBW. Among the largest credit card issuers, Citi would likely experience the greatest impact (2026 earnings cut 10%) given its retail-services portfolio, while the impact for the likes of JPMorganChase, Bank of America, Wells Fargo and U.S. Bank would likely be more modest, with 2026 earnings down 1-4%.

The industry balks, again

The credit card industry’s response to Trump’s plan – that caps would lower availability to credit –  is similar to earlier attempts at restrictions. The threatened response by the issuers to an interest-rate cap is to tighten underwriting criteria, resulting in fewer consumers having access to credit cards, according to Aaron McPherson, principal at AFM Consulting.  “However, this hurts the issuers as well as consumers, because 10% of something is still better than 20-30% of nothing,” McPherson told American Banker. “We saw similar threats in response to the CARD Act, and yet overall credit continued to grow following a drop during the 2008 financial crisis.”

Consumers could save money from caps. In a report issued in September, Vanderbilt University researchers said the profit margins of the credit-card market at every FICO credit score tier are thick enough to absorb a “very significant reduction in interest caused by a new federal usury rate.” This is due to the hefty profits that issuers make on interchange fees charged to merchants and the healthy profitability of credit cards issued to customers at all FICO tiers – not just superprime borrowers, the university said, noting that usury caps of 18% or 15% would save Americans $16 billion and $48 billion a year, respectively, without hurting rewards or lending volumes. A 10% cap would save Americans $100 billion, but would also lead to a $27 billion reduction in rewards for customers with FICO credit scores of 760 or lower.

McPherson expects issuers to seek to raise fees, in particular by reintroducing an annual fee on cards that don’t already have one. “Some consumers may be unwilling to pay such a fee, but those who get greater benefits from reward points than the cost of the annual fee would probably retain it. Mainly this benefits consumers who currently revolve, and therefore do not get much benefit from rewards anyway.”