Citi Warns of Potential Economic Slowdown From Trump's Credit Card Cap

President Donald Trump has proposed a 10% cap on credit card interest rates starting January 20, 2026. In a post on Truth Social, Trump stated that consumers are being 'ripped off' by rates that can exceed 20% or 30%. The president did not provide details on how the cap would be implemented, but he emphasized it as a one-year initiative.

The proposal has sparked significant debate among financial institutions. Major banks, including JPMorgan Chase, UBS, and Citi, warned that such a cap could limit access to credit for millions of Americans, particularly those with lower credit scores. These banks argue that high interest rates compensate for the risk of default on unsecured credit card loans.

Citigroup Chief Financial Officer Mark Mason stated during an earnings call that a cap on interest rates would have 'a deleterious impact on the economy'. He added that Citi is committed to addressing affordability concerns but cannot support the proposed cap due to its potential negative consequences.

Why Did This Happen?

Trump's move comes amid growing public concern over the cost of living and rising credit card debt. U.S. credit card balances reached $1.23 trillion at the end of the third quarter of 2024, with average APRs at their highest levels since 2015. The president has long criticized credit card companies for what he describes as excessive and unfair rates.

Klarna CEO Sebastian Siemiatkowski has publicly supported the proposal, arguing that it would prevent consumers from accumulating unsustainable debt. Siemiatkowski emphasized that traditional credit card models incentivize high-interest borrowing, which disproportionately affects lower-income individuals.

How Did Markets React?

The proposal has already affected financial markets. Shares of JPMorgan, Citi, and other major banks have fallen between 5% and 8% over the past week. Investors are concerned about the potential impact on bank profitability, particularly for institutions that rely heavily on credit card interest revenue.

Industry groups, including the Electronic Payments Coalition, have warned that a 10% cap could lead to higher annual fees and fewer rewards for consumers. They argue that banks may adjust their business models by reducing credit availability or imposing additional fees to offset lost revenue from interest rates.

What Are Analysts Watching Next?

Analysts are closely watching how the proposal will be implemented. Some experts suggest that a cap could save Americans $100 billion in interest annually, but they also warn of potential unintended consequences. Brian Shearer of the Vanderbilt Policy Accelerator noted that a 10% cap could reduce rewards for borrowers with credit scores of 760 or lower.

Citigroup and other banks have emphasized the need for collaboration with the Trump administration to address affordability concerns without limiting credit access. Mason noted that Citi wants to work with the administration on solutions that balance affordability with the need for credit availability.

The broader economic implications of the proposal remain uncertain. JPMorgan CFO Jeremy Barnum warned that a cap could have a 'dramatic' impact on the credit card industry and lead to a significant slowdown in the economy.

As the debate continues, lawmakers remain divided. While some, like Senator Bernie Sanders, support the cap as a way to protect consumers, others have expressed concerns about its potential negative effects on credit availability and economic growth.