Assessing the "Trump Card" Proposal: A Structural Shift for U.S. Credit

President Donald Trump has launched a direct assault on the credit card business, proposing a one-year cap on interest rates at 10%, effective January 20. This move, announced on his Truth Social platform, is a politically driven intervention aimed at addressing the rising cost of living. The proposal immediately rattled financial markets, triggering a sell-off in banking stocks as investors grappled with the threat to a major profit driver.

The administration's stated target is clear: to protect consumers from what the President calls "ripped off" rates. The policy's structural premise rests on the current state of the market. As of January 7, the average credit card interest rate had climbed to an all-time high of 19.65%. This level, driven by soaring inflation and elevated default risks, has made the unsecured lending segment a powerful engine for bank profitability. A sudden cap to 10% would compress margins on a massive loan book, forcing a fundamental restructuring of the business model.

In response to industry pushback, the White House has floated an alternative concept: the "Trump card." National Economic Council Director Kevin Hassett described this as a plan for banks to voluntarily provide credit cards to underserved Americans who have income but lack access. The idea is to expand credit availability as a counterweight to the rate cap, potentially avoiding legislation. Yet, this alternative lacks concrete details and formal discussions with banks. As of now, it remains a vague proposal, with at least one major issuer stating it has not yet had any discussions with the administration about the concept.

The bottom line is a policy in flux. The initial cap proposal is a blunt instrument targeting a specific, high-yield segment of banking. The "Trump card" is a potential off-ramp, but its viability hinges on voluntary bank participation-a significant unknown. For now, the market's reaction underscores the vulnerability of credit card profits to political intervention, with the critical metric being the current, elevated rate environment that makes this segment so lucrative-and so politically exposed.

The Banking Sector's Financial Vulnerability

The proposed 10% rate cap would not just pressure profits; it would force a drastic contraction in the very credit that fuels the economy. The scale of the impact is staggering. According to an analysis cited by the Electronic Payments Coalition, a cap at that level would affect 82-88% of credit card accounts, impacting an estimated 175-190 million cardholders. This isn't a niche policy-it targets the overwhelming majority of the unsecured lending market.

Bank executives have issued stark warnings about the consequences. JPMorgan Chase's CFO, Jeremy Barnum, stated unequivocally that if implemented, the cap would be "very bad for consumers, very bad for the economy" and that the bank would have to "change the business significantly and cut back". The core mechanism is straightforward: with the high-margin revenue stream from interest payments abruptly slashed, banks would have no choice but to sharply reduce credit availability. As Barnum noted, this would likely result in "people losing access to credit, like on a very, very extensive and broad basis", particularly harming those who need it most.

This vulnerability is amplified by recent market conditions. The Federal Reserve's latest data shows the sector was already facing headwinds before the proposal. In November, while overall consumer credit grew at a modest 1.0% annual rate, revolving credit decreased at an annual rate of 1.9%. This contraction in the credit card segment indicates a slowdown in consumer borrowing and spending, a trend that would be severely exacerbated by a policy that makes the product far less profitable to issue. The sector's financial health was already under pressure, making it far more susceptible to a policy shock that threatens its primary profit engine.

The bottom line is a sector caught between a rock and a hard place. It is already scaling back, as evidenced by the recent decline in revolving credit. A 10% cap would compel a further, forced contraction, with executives warning it would backfire on the very consumers the policy aims to protect. The financial vulnerability is structural: the business model depends on high rates to cover the risk of unsecured loans, and a cap to 10% would fundamentally break that math.

Consumer Welfare and Market Reallocation Risks

The policy's stated goal is to protect consumers, but the immediate financial math suggests a different outcome. The critical metric is the sheer scale of the debt at risk. As of the third quarter of 2025, Americans' total credit card balance stood at $1.233 trillion. This is not a niche market; it is a massive pool of consumer credit that would be directly impacted by a 10% rate cap. The primary risk is a broad reduction in access, a point executives have made repeatedly. JPMorgan Chase's CFO warned that the policy would lead to "people losing access to credit, like on a very, very extensive and broad basis", with the most vulnerable-those who need it most-being hit hardest.

This contradicts the policy's affordability goals. The very consumers the cap aims to shield are the ones most likely to see their borrowing options vanish. Banks, facing a collapse in the high-margin revenue from interest, would be forced to tighten lending standards dramatically. The result would be a credit crunch, particularly for those with lower credit scores who rely on credit cards for essential purchases and cash flow management. The policy's intent to provide relief could instead trigger a forced deleveraging, pushing consumers toward more expensive and less transparent alternatives.

This leads to the second major risk: market reallocation. With traditional credit cards becoming scarce and unprofitable, capital would seek other avenues. One likely destination is the "buy now, pay later" (BNPL) sector. While these services often market themselves as affordable, they can impose higher effective costs through fees and penalties. More critically, they operate under a less stringent regulatory framework than banks, offering less consumer protection. The migration of credit to these less regulated channels could ultimately impose a heavier financial burden on consumers, undermining the policy's promise of lower costs.

The bottom line is a policy that risks trading one form of financial pressure for another. By targeting the most profitable segment of credit, the proposal threatens to collapse the entire credit card ecosystem. The unintended consequence would be a forced shift to alternative, and potentially more costly, forms of borrowing, leaving the most financially vulnerable with fewer, less safe options.

Catalysts, Scenarios, and What to Watch

The immediate catalyst for this policy is clear: Congressional action. The White House has floated the idea of a voluntary "Trump card" to expand credit, but the original 10% cap proposal would require legislation to override the market's natural pricing of risk. This creates a high-stakes political battleground. The financial industry's coordinated opposition is a major obstacle, with executives warning the policy would be "very bad for consumers, very bad for the economy" and that banks would have to "change the business significantly and cut back." Until Congress resolves the issue, the proposal will remain a significant overhang for credit card issuers.

The key scenario to watch is the "Trump card" concept gaining traction. National Economic Council Director Kevin Hassett has claimed banks are "in conversations" and that many CEOs "think that the president's on to something." The idea is to have banks voluntarily extend credit to underserved Americans with income but no leverage, as a counterweight to the rate cap. Yet, this scenario faces a critical hurdle: it lacks a clear funding or risk-sharing model. At least one major issuer has stated it has not yet had any discussions with the administration about the concept. Success hinges entirely on voluntary bank participation, which is far from guaranteed given the sector's already-elevated risk profile and recent contraction in revolving credit.

For investors, the path forward is one of watching leading indicators for early signs of the policy's impact, regardless of its final legislative status. The trajectory of consumer credit, particularly revolving credit, is a direct barometer. A continued decline would signal a market already retreating from unsecured lending, a trend that would be severely exacerbated by a cap. Equally important is monitoring bank net interest margins. The sector's profitability is built on the high rates charged for unsecured loans. Any sustained compression in these margins, even from market expectations, would force a reassessment of the entire credit card business model and its economic footprint. The bottom line is that the policy's fate is uncertain, but its potential impact is already being priced into the market's view of credit availability and bank earnings.