Risk vs. Reward: Assessing the Impact of Trump's Credit Card Rate Cap on Financial Sector Stocks

President Donald Trump's proposed one-year cap of 10% on credit card interest rates, set to take effect on January 20, 2026, has ignited a contentious debate among policymakers, financial institutions, and consumer advocates. While the policy aims to alleviate the burden of high-interest debt for American households, its implications for major credit card issuers like JPMorgan Chase (JPM), Citigroup (C), and Capital One Financial (COF) remain a focal point for investors. This analysis evaluates the potential risks and rewards of the proposal, focusing on earnings exposure, consumer behavior shifts, and mitigation strategies.

Earnings Exposure: A Mixed Outlook

The proposed cap could directly reduce net interest income for banks that rely heavily on credit card fees. For instance, Capital One, the largest U.S. credit card issuer, faces a significant threat, as its revenue is disproportionately tied to interest income. Analysts estimate that a 10% cap could save consumers approximately $100 billion annually in interest payments, but this would come at the expense of banks' profit margins. JPMorgan Chase and Citigroup, with their diversified revenue streams, are expected to weather the impact more effectively. However, even these institutions may face pressure, as credit card interest accounts for a meaningful portion of their earnings.

Citigroup's Q4 2025 earnings projections, for example, remain cautiously optimistic, with analysts forecasting $1.58 per share and $20.94 billion in revenue. Yet these forecasts do not explicitly account for the cap's potential to erode credit card-related income. Similarly, JPMorgan's ability to offset losses through fee-based income or other services may mitigate the impact, though its large credit card portfolio remains a vulnerability.

Consumer Behavior and Credit Availability

The cap's effect on consumer behavior is equally critical. Lower interest rates could incentivize debt repayment, reducing outstanding balances and transaction volumes for payment processors like Visa and Mastercard. However, critics argue that the policy could restrict credit access for high-risk borrowers, pushing them toward alternatives like payday loans, which carry higher costs. This risk is underscored by historical precedents, such as Arkansas' interest rate caps, which led to reduced credit availability for lower-income individuals.

For banks, the challenge lies in balancing affordability with profitability. The American Bankers Association has warned that the cap could destabilize credit card operations, forcing institutions to restructure credit lines or raise fees to maintain margins. Such adjustments could alienate consumers, particularly if they perceive the policy as a net negative despite its intended benefits.

Mitigation Strategies: Fee Adjustments and Credit Restructuring

To counteract revenue losses, banks may adopt strategies such as increasing non-interest fees (e.g., annual fees, late charges) or tightening credit underwriting criteria. For example, during the Biden administration's debit card fee cap, banks eliminated rewards programs to offset losses. A similar approach could be employed here, though it risks further eroding customer satisfaction.

Capital One, in particular, may need to restructure its loan book, potentially reducing credit limits for high-risk borrowers while expanding offerings for those with stronger credit profiles. JPMorgan and Citigroup, with their broader service portfolios, could pivot toward wealth management or commercial banking to offset declines in credit card income.

Investment Strategy: Balancing Risk and Reward

For investors, the key question is whether the cap's short-term risks outweigh its long-term rewards. While the policy could boost consumer spending and reduce debt burdens, its temporary nature (one year) limits its long-term impact on financial sector earnings. Additionally, the lack of legislative clarity-Trump has not yet specified whether the cap will be implemented via executive action or legislation-introduces regulatory uncertainty.

A diversified approach may be prudent. Investors could overweight stocks with less exposure to credit card interest income, such as payment processors like Visa and Mastercard, which are less directly impacted by the cap. Conversely, pure-play credit card issuers like Capital One warrant caution, given their heightened vulnerability.

Conclusion

Trump's 10% credit card rate cap represents a high-stakes experiment in consumer finance. While it promises significant savings for borrowers, its potential to disrupt credit availability and bank profitability cannot be ignored. For investors, the path forward hinges on monitoring legislative developments, assessing banks' mitigation strategies, and evaluating the broader economic implications of a policy that seeks to redefine the cost of credit in the U.S.