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* Suggested credit score ranges for credit cards are supplied by QuinStreet, not from the issuers, and are guidelines, not a guarantee of approval.
* Suggested credit score ranges for credit cards are supplied by QuinStreet, not from the issuers, and are guidelines, not a guarantee of approval.
President Trump made waves on Friday night after posting on Truth Social that he wants to cap interest rates on credit cards at 10% for one year starting on January 20th.
There’s a lot to unpack here and it’s not all what it seems.
Notwithstanding the fact that President Joe Biden planned policy changes in 2024 to cap credit card late fees at $8 and Non Sufficient (overdraft) fees at $5 and both policies were subsequently vacated by the Trump administration in 2025 to allow higher issuer fees to be charged to consumers again, let’s dig into this.
First, we should get out of the way that this cannot actually be enacted in our country via Executive Order. Congress would need to actually legislate this. It’s not something I’d ever have expected in a country so rooted in capitalism, but sure, Congress could pass a bill to do this just like any industry can be regulated. So, January 20th seems, well, unlikely.
I also want to address what companies are impacted here. It’s lenders like Chase, American Express, Credit One, and on and on. The lenders.
But Mastercard and Visa? They are payment rails. They are only secondarily impacted if overall charge volume changes from this and charge volumes would not necessarily decrease, although they certainly could if some of the possible outcomes I’ll describe below play out. But people could take more debt on which could add to volumes. Mastercard and Visa are the only companies here that sound like the most impacted when they are the least impacted. Now American Express and Capital One / Discover are both issuers and processors, so they do have downside risk from this in my opinion if volume gets hit.
But before that, let’s take at face value that President Trump can actually get Congress to pass this (which I seriously doubt). What would happen next?
Credit Card Companies Would Need to De-Risk
1) Credit card companies would almost certainly reduce credit lines of many customers and close accounts of others. While companies can certainly be regulated, they cannot be forced to do business with anyone at a loss.
Note the insurance companies that have pulled out of markets like California that they deemed uninsurable due to regulations. Meaning that in California, State Farm pulled out of the market entirely because they couldn’t charge sufficient premiums to cover their risk.
Credit card companies use sophisticated models that figure out what interest rates need to be charged to account for default risk. I get it when someone says that 29% interest rates are too high. I also get that a bank that determines this is what allows them to offer someone with a 590 credit score a line of credit that can be a lifeline to them, that it beats the alternative of the bank declining that customer credit entirely.
But that is what would happen – unless the lenders decided that a one year period was sufficiently short enough to absorb those additional losses to stay in the good graces of the administration – a distant possibility!
Customer Dispersion
2) If the companies did not decide to absorb the short term additional risk, that would push the newly de-banked lower credit consumer to Buy Now Pay Later and other alternative options. They still need access to lending, but the credit card companies won’t just magically allow someone that they deem high risk not “pay up” for that risk with appropriate interest rates.
Unexpected Consequences – and Fees!
3) In the scenario that de-banking doesn’t happen at large scale (maybe because the legislation would only be for a one year period), those lower credit customers would be likely to take on more debt as the monthly payments are magically lower. But remember this change would only be for a year (as announced on Truth Social, anyway). So when those credit rates rebound, those consumers would be in even worse shape than they are today. They might spend a year spending hard, making the economy look better than it is, and then be in real trouble a year later. Bankruptcies could spike.
Secured credit cards might surge as well if that is the only thing card issuers are willing to give large numbers of consumers.
And fees, fees, fees! Even if banks don’t fully “de-bank” a large percentage of consumers, a hard APR cap pushes them to re-price somewhere else:
Think annual fees, balance transfer/cash advance fees, penalty pricing where allowed, fewer 0% promos and smaller welcome bonus offers.
Impact on Credit Card Rewards
4) What would happen to credit card rewards?
Of course I’ll address this, but anyone that claims they know exactly what would happen in this regard is too sure of themselves. It could go two ways! One is the doomsday scenario where reduced issuer profit does what the Credit Card Competition Act was going to do and kills rewards as we know it. They can’t make enough to finance rewards and programs give you less when you spend and less when you redeem. It’s possible.
But there’s another scenario I don’t see anyone talking about. That’s the one where the companies need prime non-revolving customers more than they do now. The mix of revolve and non-revolve customers doesn’t work in the percentage it does now and they need less risk even at the expense of interest. In this scenario, interchange and annual fees are king. We’d see even more of a K-Shaped credit card economy and credit card rewards would stay strong for high income, high credit people while vanishing entirely from the lower end of the credit card risk spectrum. Lower interest rates and no rewards might be just fine, though, for that cohort which shouldn’t be using rewards cards if carrying a balance anyway.
Now, if we saw the death knell of regulations – a cap on interest rates and a cap on interchange fees, credit card rewards would be decimated.
The bottom line?
I don’t see this playing out as it sounds, but it’s certainly interesting to see the reaction to the idea. On its face, this isn’t the kind of regulation we expect to see in America – home of Capitalism. But many Americans are struggling to make ends meet, so this kind of populist messaging (and potentially policy) is playing quite well.
But regulation has an uncanny way of creating new and different problems while not solving the one it is intended to create.
If a real cap ever happened, issuers wouldn’t just take losses out of the kindness of their hearts.
They are all public companies with fiduciary responsibilities.
They’d have no choice but to slash credit lines for some and close accounts for others.
They would need to re-price risk elsewhere, pushing lower-credit consumers toward BNPL and other payment deferment alternatives.
And if lenders don’t tighten much because it’s “only a year,” you risk the opposite problem: more borrowing now, then a bigger problem when rates snap back. As I said before, I think this could spike bankruptcies.
Rewards are a wild card: They could get crushed, but I see a more likely outcome as K-shaped, where prime customers keep (or even gain) perks while subprime access and rewards get cut.
What do you think? I’ll be discussing this on X and Threads.
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