Assessing the Structural Threat to Credit Card Rewards and the Hotel Industry's Fragile Dependence

The financial markets are reacting to a direct policy assault on the credit card industry's core engine. President Trump's call for a one-year cap on credit card interest rates at 10%, effective January 20, 2026, has triggered an immediate and severe market repricing. Shares of Visa, Mastercard, and American Express have fallen 5% to 7% this week, making them among the worst performers in the Dow. This isn't just a headline; it's a structural threat to the entire financial services ecosystem built on revolving credit.

The mechanism is straightforward and devastating. For issuers, interest income is the primary profit center, directly funding the lavish rewards programs that drive customer loyalty and spending. A mandated 10% cap would directly attack that profitability, forcing a fundamental rethink of the business model. As expert Tiffany Funk noted, this could lead to a "chaotic contraction of the rewards ecosystem," with fewer cards, higher fees, and diminished benefits as banks seek to recoup lost revenue.

Yet the immediate market panic is complicated by profound implementation uncertainty. The president's statement, while forceful, did not specify how the cap would be enforced. Under current law, a mandatory nationwide rate cap would likely require congressional action. This ambiguity creates a prolonged period of regulatory risk, where the mere possibility of a cap weighs on valuations. Analysts at William Blair acknowledge the long-term resilience of the payment system, citing the Durbin Amendment as precedent, but warn that uncertainty itself will compress stock multiples in the near term.

The bottom line is a policy shock that has already moved markets. It forces a stark choice for issuers: adapt to a lower-interest world or risk a significant contraction in their most profitable product lines. For now, the market is pricing in the risk of that adaptation.

The Airline Model: Loyalty as a Core Profitability Engine

The structural dependence of U.S. airlines on credit card partnerships is not a minor revenue stream; it is the fundamental engine of their profitability. A groundbreaking analysis reveals that major U.S. airlines would be unprofitable without their loyalty programs. The numbers are stark: in 2024, Delta's profit margin would have collapsed from 10.5% to a 2.5% loss, while American's would have turned from a 4.8% profit into an 8.3% loss. This is not a marginal adjustment-it is a core business model where flying passengers is a loss leader, and financial services are the profit center.

The scale of this dependence is immense, exemplified by Delta's landmark deal with American Express. In 2024, the partnership generated $7.4 billion in proceeds for the airline. Executives are now forecasting that this figure could reach $10 billion annually in the long term. This isn't just a transactional relationship; it is a direct bet on high-income travelers, a group that has continued to spend while others have pulled back. The partnership fuels record revenues and is a critical component of Delta's strategy to cater to wealthier customers.

This model is universal across the major carriers. United, American, Alaska, and JetBlue all rely on similar cobranded card deals to offset core operational losses. As one analysis notes, the largest airlines have developed into a special kind of company... one that consistently loses money on its core business but makes up for it on financial services. The cobranded card ecosystem, where the airline and card issuer split interchange fees and annual fees, has become an absolute gold mine. The threat to this ecosystem is therefore not just a risk to credit card issuers-it is a direct threat to the financial viability of the entire U.S. airline industry.

The Hotel Industry's Fragile Dependence and the Double-Edged Sword

While airlines have built a fortress of profitability around their card deals, the hotel industry operates on a far more precarious foundation. The structural weakness is stark. IHG's CEO admits its entire portfolio of Chase credit cards generates just $100 million a year in fees. That figure is a fraction of what its major rivals command, with estimates suggesting Marriott and Hilton earn $300 to $400 million annually from their cobranded card ecosystems. This disparity is not just about scale; it reflects a fundamental difference in product quality and customer value. As IHG's leadership notes, its card simply doesn't earn very well for spending compared to its luxury-focused competitors, leaving it vulnerable in any renegotiation.

This vulnerability is compounded by a double-edged dynamic that credit cards have perfected. The system acts like a Robin Hood in reverse, redistributing interest payments from high-balance users to reward beneficiaries. This $15 billion annual transfer is the lifeblood of the rewards economy, funding everything from airline miles to hotel points. The proposed 10% interest rate cap directly targets this mechanism, aiming to curb the profits banks earn from high-risk lending. The policy's architects argue it will provide relief, but the mechanism is blunt. By capping rates, it attacks the very source of capital that banks use to fund their lavish rewards programs.

The consumer impact of this policy would be immediate and severe. As expert Tiffany Funk warns, a mandated cap would force banks into a "chaotic contraction of the rewards ecosystem." To maintain profitability, issuers would need to cut spending on rewards. This would likely manifest as fewer credit card products, higher annual fees, and diminished benefits for consumers. The policy intended to help those struggling with high APRs could inadvertently restrict credit access for lower-income borrowers, while simultaneously stripping away the rewards that many middle- and upper-income consumers rely on. For hotel chains like IHG, which are already earning a fraction of what their peers make from these partnerships, the pressure to renegotiate would intensify, potentially leading to less favorable terms and further eroding an already fragile revenue stream.

Catalysts, Scenarios, and What to Watch

The policy threat remains a high-stakes gamble, with its ultimate impact on airline and hotel valuations hinging on a series of concrete catalysts. The path forward is fraught with legislative uncertainty, but the first tangible signals will come from corporate earnings and operational adjustments.

The primary legislative catalyst is the fate of the Credit Card Competition Act and any standalone rate cap bill. President Trump's endorsement of the former and call for a 10% cap are bold proposals, but their enactment is far from guaranteed. As House Speaker Mike Johnson noted, such ideas should not be "too spun up about," highlighting the significant Republican opposition that has stymied similar efforts in the past. The president's push sets up an election-year clash, but without a clear legislative vehicle or majority support, the proposal faces steep obstacles. The bottom line is that the policy's materialization is a binary event-either Congress passes it, or it remains a political talking point. For now, the market is pricing in the risk, but the absence of a concrete bill on the floor keeps the threat in a state of regulatory limbo.

The first earnings catalyst arrives with the first-quarter 2026 reports from Delta, American, and United. These filings will provide the earliest hard data on whether the policy threat is already influencing business. Analysts will scrutinize revenue streams for any signs of reduced credit card proceeds or changes in loyalty program spending. Delta's partnership with American Express, which generated $7.4 billion last year and is forecast to reach $10 billion, is the benchmark. Any deviation from that trajectory would be a major red flag. Similarly, American's new Citibank deal, designed to boost revenue, will be under the microscope. The key question is whether airlines begin to report a deceleration in the growth of these financial services partnerships, signaling that banks are pulling back on rewards funding due to the looming cap.

Finally, the operational catalyst will be announcements from airlines and hotels on their cobranded card programs. As banks seek to maintain profitability under a lower-interest regime, they will likely adjust terms. Watch for fee increases, benefit reductions, or changes in spending requirements. The pattern is clear: an issuer raises the annual fee and adds statement credits to encourage cardholders to keep their cards and spend more. This is a direct operational response to margin pressure. For hotel chains like IHG, which earn a fraction of what its rivals make from cards, these changes could force a painful renegotiation of terms. The first major fee hike or benefit cut from a major airline issuer will be a critical signal that the "chaotic contraction" of the rewards ecosystem is beginning.

The setup is one of delayed but potentially severe impact. Until Congress acts, the threat remains a shadow. But the first earnings reports and operational announcements will reveal whether the market's fears are being validated in the real world. For investors, the watchlist is clear: monitor the legislative floor, the quarterly numbers, and the fine print of the next cardholder agreement.