Why a proposed 10% cap on credit card interest is unsettling big banks

Good morning. President Donald Trump’s proposal to temporarily cap credit card interest rates has drawn both support and criticism. In a January 9 social media post, Trump called for a one-year [cap] starting January 20, reviving a pledge from his 2024 campaign as the administration seeks to showcase progress on affordability.

Supporters contend that a temporary cap could ease pressure on households facing average annual percentage rates (APRs) above 20%.

However, economists and bank executives warn the move requires congressional approval and that the policy may have unintended consequences, making banks more hesitant to extend credit and thereby slowing consumer spending.

“An artificial limit on credit card interest rates is likely to backfire on the White House by reducing credit access for cash-strapped households that need it most,” Columbia Business School economics professor Brett House told me.

Earnings call discussions

The proposal dominated discussions this week during earnings calls of America’s major banks. Executives largely agree a 10% cap would restrict credit access for higher-risk borrowers and could harm consumer spending and growth, Morningstar director Sean Dunlop told me.

“I believe Jane Fraser, CEO of [bank], provided the most context among the firms I cover, referencing a past attempt by President Carter to impose interest rate ceilings—which the administration had to abandon within two months due to severe economic impacts,” Dunlop said.

Fraser noted 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 reduce spending on those cards as credit availability declines, he said.

Other CEOs and CFOs shared similar concerns:

— [Executive] said the cap would likely limit credit access rather than help consumers. He argued intense competition already compresses margins and that price controls would force broad lending cutbacks—especially for higher-risk borrowers.

— [Bank] CEO Brian Moynihan stated the industry is committed to affordability but argued a cap would tighten credit. “You’ll end up with restricted credit, meaning fewer people will get credit cards, and the balances available on those cards will also be limited,” he said.

—Citi [executive] called affordability an important issue and said Citi looks forward to working with the administration on a constructive solution. “I also want to clarify that an interest rate cap is not something we would or could support,” he said, arguing it would restrict credit access. 

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 this flexibility, issuers would narrow underwriting and concentrate lending among the least risky borrowers. “For issuers that serve lower-income borrowers, like Bread, the economics of credit cards don’t work at lower interest rates, and they’d be forced to drastically reduce lending volumes,” 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.

Quick note: In observance of Martin Luther King Jr. Day, the next CFO Daily will be in your inbox on Tuesday.

Sheryl Estrada