Trump's 10% APR Cap Proposal: A Tectonic Shift for the Credit Card Industry

The credit card industry, long a cornerstone of U.S. consumer finance, faces a seismic regulatory challenge as President Donald Trump revives his campaign promise to impose a one-year 10% annual percentage rate (APR) cap on credit card interest. This proposal, announced in January 2026, has ignited fierce debate between consumer advocates, financial institutions, and policymakers. For investors, the potential implications are profound, reshaping revenue models, credit availability, and the sector's long-term viability.

The Current State of the Industry

The credit card industry's profitability in 2025 is anchored by three pillars: interest charges, interchange fees, and rewards programs. According to the CFPB, interest charges alone reached $160 billion in 2024, driven by an average APR of 25.2% for general-purpose cards. This figure underscores the sector's reliance on high-interest borrowing, particularly among subprime borrowers, who account for over 70% of minimum-payment-only cardholders. Interchange fees, which range from 1.10% to 3.15% of each transaction, further bolster revenue, with U.S. credit card spending exceeding $6.1 trillion in 2025. Rewards programs, while costly to maintain, incentivize spending and generate indirect value through increased transaction volumes.

Trump's Proposal and Regulatory Uncertainty

Trump's 10% APR cap, set to take effect on January 20, 2026, aims to curb what he calls "exploitative" rates, which often exceed 30% for subprime cards. However, the proposal's legal foundation remains ambiguous. Unlike the bipartisan S.381 bill introduced in 2025 by Senators Bernie Sanders and Josh Hawley-which sought a five-year cap through legislative action-the Trump plan lacks clarity on whether it would be enacted via executive order or congressional legislation. This ambiguity has left regulators and industry players in limbo, with the Federal Reserve and Congress historically requiring legislative authority to impose such sweeping rate controls.

Industry Pushback and Economic Risks

The banking sector has uniformly opposed the cap, warning of systemic consequences. A joint statement from the American Bankers Association and the Financial Services Forum argues that a 10% APR limit would "devastate" credit access for lower-credit-score borrowers, forcing them to seek alternatives like payday loans or pawnshops. Industry analysts estimate that up to 80% of credit card accounts could be canceled or have reduced credit lines under the cap, disproportionately affecting those with scores below 740. This contraction in credit availability could exacerbate financial instability for vulnerable households, a concern echoed by critics like Senator Elizabeth Warren, who has criticized Trump for failing to support legislative solutions.

Profitability Under Pressure

For investors, the cap's impact on profitability is a critical concern. A 10% APR would slash interest income by an estimated $100 billion annually, compelling issuers to pivot to other revenue streams. Merchant fees and rewards programs could partially offset these losses, but such a shift risks alienating subprime customers, who rely on credit cards for financial flexibility. Smaller banks, which cater to below-prime borrowers, may face existential threats, while larger institutions could leverage premium rewards and high-credit-score customers to maintain margins. According to Orrick, this realignment could deepen market segmentation, reducing the sector's overall reach and growth potential.

Historical Precedents and Regulatory Lessons

The industry's response to Trump's proposal mirrors past regulatory battles. The 2009 Credit CARD Act, which restricted interest rate hikes and fees, initially reduced profitability but spurred innovation in rewards programs and data-driven underwriting. Similarly, the 2018 Economic Growth Act eased restrictions on smaller banks, fostering competition but also increasing fraud risks. These precedents suggest that while regulatory shocks can disrupt short-term earnings, they often catalyze long-term adaptation. Yet, a 10% APR cap represents a more radical departure from current norms, with potentially more severe consequences for credit availability and issuer margins.

Investment Implications

For investors, the key question is whether the credit card sector can adapt to a post-APR world. While large banks may weather the storm by shifting to interchange fees and premium rewards, smaller players and subprime-focused lenders face existential risks. The cap could also accelerate consolidation, as weaker institutions exit the market or merge with larger competitors. Additionally, regulatory uncertainty-whether the cap is implemented via executive action or legislation-introduces volatility, making long-term planning challenging for both issuers and investors.

Conclusion

Trump's 10% APR cap proposal represents a tectonic shift for the credit card industry, with far-reaching implications for profitability, credit access, and regulatory dynamics. While the measure promises immediate savings for consumers, it risks destabilizing the sector's business model and pushing borrowers toward riskier alternatives. For investors, the path forward hinges on the balance between regulatory action, industry adaptation, and the broader economic context. As the January 2026 deadline looms, the sector's ability to innovate and navigate this regulatory crossroads will define its future.