Trump's 10% Credit Card Cap: A Structural Shock to the Issuer Business Model

President Trump has delivered a direct challenge to the credit card industry, announcing a proposal for a one-year cap on interest rates at 10%. The plan, effective from January 20, 2026, aims to slash the cost of borrowing for millions of Americans. This move is the latest in a series of populist economic announcements by the administration, targeting the high cost of living. Yet the policy's path is fraught with uncertainty, as it remains unclear what authority the president possesses to enforce such a cap without congressional action.

The scale of the problem the proposal seeks to address is substantial. The average credit card interest rate currently stands at 22.3 percent, a level that has risen sharply from under 13 percent in 2013. This high cost is layered atop a massive debt burden, with total credit card debt at $1.23 trillion and the average household carrying a balance of $10,563. For many families, these rates represent a significant financial strain, making the proposal a politically potent issue.

The political landscape surrounding the cap is defined by a striking irony. The idea itself has drawn bipartisan support, with legislation previously introduced by Senator Bernie Sanders and Senator Josh Hawley. Sanders, in fact, had endorsed Trump's proposal to cap rates at 10% following his 2024 reelection. Yet, just hours after Trump's announcement, Sanders called the plan "unacceptable." His criticism highlights the tension between the symbolic appeal of a rate cap and the practical realities of implementation, while also pointing to the significant profits large banks have earned under the current regime. This reversal underscores the complex calculus of political positioning in the face of a sweeping policy shift.

Business Model Impact: Revenue, Risk, and Profitability

The proposed cap strikes at the very heart of the credit card business. For issuers, interest income is the primary engine of revenue, with the average rate currently over 20%. A sustained 10% cap would therefore represent a direct, permanent halving of this core profit stream for many institutions. This forces a fundamental and urgent search for alternative fee-based income to offset the massive revenue shortfall.

The financial math is stark. If interest is cut by half, issuers must either absorb the loss, which would decimate profitability, or aggressively raise other fees. The latter path risks alienating customers and could accelerate the existing trend of declining revolving balances. Data shows that revolving credit decreased at an annual rate of 1.9% last quarter, a sign of consumers already pulling back on credit card borrowing. A policy that makes credit cheaper could, paradoxically, push some issuers toward tighter credit standards or account cancellations to manage risk, further reducing the pool of earning assets.

This creates a dangerous feedback loop. As issuers tighten lending, they may inadvertently push consumers toward less regulated, higher-cost alternatives. This is the systemic warning from billionaire investor Bill Ackman, who has criticized the plan as a mistake that could push consumers toward 'loan sharks' charging higher rates. The policy aims to protect borrowers from high rates, but by undermining the viability of the regulated credit card market, it may inadvertently expand the shadow banking sector.

The bottom line is that a 10% cap is not a simple price control; it is a structural shock to a business model built on high-margin interest. The industry's response will be a critical test of its resilience and adaptability.

Implementation Pathways and Regulatory Uncertainty

The path from announcement to enforcement is a minefield of legal and political hurdles. The primary regulator with jurisdiction over credit card practices, the Consumer Financial Protection Bureau (CFPB), is itself a central point of contention. The administration has suggested the agency should not exist and has slashed its funding, leaving it in a weakened state just as it would be tasked with enforcing a sweeping new rule. This creates a fundamental conflict: the agency meant to police the industry is being starved of resources, complicating any potential enforcement action.

This uncertainty opens two plausible, competing pathways for the policy's evolution. The first is a legislative blueprint already on the books. A Senate bill, S.381 sponsored by Bernie Sanders and Josh Hawley, would impose a 10% cap for five years, with a sunset provision in 2031. This provides a clear, albeit longer-term, framework for a rate cap. The second pathway is the administration's unilateral push, with Trump's one-year cap effective from January 20, 2026. This creates a direct timeline conflict: the executive proposal is set to expire in 2027, while the Senate bill would run until 2031. The administration's plan may be a tactical move to pressure the industry or force a legislative showdown, but its short duration and lack of a clear enforcement mechanism make it a high-risk gamble.

The industry's warning is a critical variable in this unfolding drama. Issuers argue that a 10% cap would make credit unattainable for millions of consumers, particularly those with lower credit scores. This could trigger a wave of account cancellations and a strategic withdrawal from the market, as the cost of servicing these loans would likely exceed the capped revenue. The result, as billionaire investor Bill Ackman has warned, is a dangerous shift toward less regulated, higher-cost alternatives. In other words, the policy aimed at protecting borrowers could inadvertently expand the shadow banking sector, undermining the very financial stability it seeks to promote. The coming months will test whether the political will to cap rates can overcome the structural realities of the credit card business.

Catalysts, Risks, and Forward-Looking Implications

The coming weeks will determine whether this is a fleeting executive announcement or the start of a lasting structural change. The primary catalyst is the administration's next move. By early 2026, it must decide between attempting unilateral executive action to enforce the January 20 cap or pushing for legislative passage of the longer-term Senate bill. The latter path is more credible, but the administration's own actions-like slashing CFPB funding-undermine its ability to shepherd such a bill through Congress. The clock is ticking, with the one-year cap set to expire in 2027, creating a narrow window for a political showdown.

The key financial risks for issuers are twofold. First, a sustained 10% cap would trigger a sharp decline in net interest margin (NIM), the core profitability metric for card lenders. With interest income halved, the pressure to raise fees or cut costs becomes immense. Second, if issuers respond by tightening credit standards to manage risk, it could inadvertently increase delinquencies. This is the feedback loop warned about by Bill Ackman: if credit becomes unattainable for millions, it could force consumers into less regulated, higher-cost alternatives, destabilizing the broader credit ecosystem.

For investors, the forward-looking metrics to monitor are clear. The first is issuer guidance on fee income diversification. Companies will need to articulate concrete plans to offset lost interest revenue, whether through higher transaction fees, annual fees, or other services. The second, more immediate metric is the trend in consumer credit, specifically the revolving credit balance. Data already shows a decrease at an annual rate of 1.9% last quarter, a sign of consumers pulling back. Post-January 20, any acceleration in that decline would signal a rapid withdrawal from the card market, confirming the policy's disruptive impact. The bottom line is that the policy's fate hinges on political will, while its financial consequences will be written in the numbers on issuer balance sheets and consumer credit reports.