Trump's 10% Credit-Card Interest Rate Cap: Implications for Financial Sector Valuations and Consumer Credit Dynamics

The proposed 10% credit-card interest rate cap, introduced as the 10 Percent Credit Card Interest Rate Cap Act (S.381) in February 2025, represents a seismic shift in consumer finance policy. Spearheaded by bipartisan lawmakers such as Senators Josh Hawley (R-MO) and Bernie Sanders (I-VT), the legislation seeks to cap variable interest rates at 10% until 2031, with enforcement mechanisms including civil liability under the Truth in Lending Act and oversight by the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) according to legislation details. While proponents argue the cap could save Americans $100 billion annually in interest costs according to research, critics warn of unintended consequences, including reduced credit availability and profitability challenges for major financial institutions. This analysis evaluates the short- and long-term investment risks and opportunities for credit-card issuers like JPMorgan Chase, American Express, and Capital One, as well as broader implications for consumer credit dynamics.

Financial Sector Implications: Revenue, Profit Margins, and Stock Valuations

The average credit card APR currently stands at 24.26%, meaning a 10% cap would slash interest income for issuers by over 60%. For institutions like Capital One, which targets high-risk borrowers with lower credit scores-often carrying balances and paying interest-this could erode a significant portion of their revenue stream according to analysis. Similarly, JPMorgan Chase and American Express, which derive substantial profits from interchange fees and premium customer segments, may face margin compression as they lose flexibility to price risk appropriately as reported.

Historical precedents, such as the 36% APR cap under the Military Lending Act (MLA), offer limited guidance. A 2023 study by the Urban Institute found that the MLA had minimal impact on credit access for most borrowers but disproportionately affected those with deep subprime credit scores (Vantage score ≤500) according to research. A nationwide 10% cap, however, would be far more disruptive. Analysts project that up to two-thirds of cardholders with imperfect credit histories could face reduced or eliminated credit lines according to analysis, forcing issuers to either tighten underwriting standards or offset losses through higher fees and reduced rewards programs as noted.

For stock valuations, the implications are mixed. American Express, with its high-net-worth customer base and pricing power to adjust annual fees, may adapt more easily than Capital One or JPMorgan Chase according to investment analysis. However, all three firms face regulatory scrutiny and potential market concentration risks, particularly as Capital One's recent acquisition of Discover Financial Services expands its dominance in interchange fees and payment networks as reported. Analysts project a "Moderate Buy" rating for Capital One, with a price target of $274.80, but caution that a 10% cap could undermine its growth trajectory according to market forecasts.

Consumer Credit Dynamics: Benefits and Risks

The cap's primary appeal lies in its potential to alleviate debt burdens for millions of Americans. According to Brian Shearer of the Vanderbilt Policy Accelerator, the savings could exceed $100 billion annually according to research. However, critics like former Trump adviser Steve Moore argue that the policy could backfire by reducing credit availability, particularly for low-income borrowers according to warnings. Historical data from the MLA expansion suggests that subprime borrowers may lose access to credit entirely, exacerbating financial instability according to findings.

Moreover, the cap could drive consumers toward alternative, less-regulated financial products like payday loans, which often carry APRs exceeding 400% as experts note. This "regulatory arbitrage" risk highlights a critical tension: while the policy aims to protect vulnerable borrowers, it may inadvertently push them into higher-cost credit markets.

Regulatory and Market Challenges

The 10% cap would require congressional action, as current regulations allow banks to operate under state-specific interest rate limits-particularly in states like South Dakota and Delaware according to analysis. This creates a fragmented regulatory landscape, complicating enforcement. Additionally, the private right of action embedded in S.381 could lead to a surge in litigation, further straining financial institutions' compliance costs according to legislation details.

Long-term, the credit card industry may face structural shifts. For example, tokenization and buy-now-pay-later (BNPL) services are projected to disrupt traditional revenue models by reducing reliance on interchange fees according to industry analysis. While these innovations could mitigate some losses from the cap, they also pose competitive threats to legacy players like JPMorgan Chase and American Express.

Investment Outlook: Balancing Risks and Opportunities

For investors, the 10% cap introduces both risks and opportunities. In the short term, margin compression and regulatory uncertainty could weigh on stock valuations, particularly for firms reliant on high-interest income. However, the long-term outlook depends on how issuers adapt. Those that pivot to fee-based models, expand interchange revenue, or leverage data analytics to optimize customer segmentation-like Capital One-may retain profitability according to analysis.

American Express, with its premium pricing power and low delinquency rates, appears better positioned to weather the cap than its peers according to investment research. JPMorgan Chase, meanwhile, faces a more complex challenge, as its card services revenue is projected to grow by 3.4% year-over-year despite regulatory headwinds according to analyst estimates.

Conclusion

Trump's 10% credit-card interest rate cap is a bold policy experiment with profound implications for financial sector valuations and consumer credit dynamics. While it promises significant savings for borrowers, the risks of reduced credit access and unintended market distortions cannot be ignored. For investors, the key lies in assessing how major issuers navigate this regulatory shift-through innovation, diversification, or strategic acquisitions-while remaining vigilant about the broader economic consequences.