Trump's Credit Card Cap: A Historical Lens on Borrower Impact

The core event unfolded late Friday, when President Trump called for a one-year cap on credit card interest rates, setting a January 20 start date. The proposal, framed as a move to ease the cost of living, immediately sent shockwaves through financial markets. Shares of major banks and card networks fell sharply in response, with JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo dropping between 1% and 4% in premarket trading. The pain was most acute for companies more dependent on card lending, as Capital One's shares fell 8% to 11% and Visa, Mastercard, and American Express also declined.

This market reaction underscores the proposal's direct threat to a key revenue stream. Credit cards are a high-margin business, and a forced cap to 10% would make large portions of the industry unprofitable, especially for higher-risk borrowers. Industry insiders warn this would likely lead to reduced credit availability as lenders scale back rewards or simply stop offering cards to subprime customers.

Yet the central question is whether the cap can actually be enforced. Analysts widely doubt it can be enacted by executive order. As UBS Global noted, "It would take an Act of Congress for such rate caps to be in place" given the expected legal challenges. The proposed January 20 start date is simply too soon for legislative action. Instead, the move appears to be a political pressure tactic, a revival of a campaign pledge meant to signal affordability concerns to voters. The market's swift sell-off, however, treats the threat as credible, pricing in the risk of a damaging policy shift even if its immediate implementation is legally dubious.

Historical Precedent: Usury Caps and Credit Market Resilience

The threat of a forced rate cap is not new. A historical parallel from the 1980s shows how such policies can force a fundamental restructuring of the industry. At the time, Citibank faced a crisis as it was squeezed between New York state usury laws and double-digit inflation rates. Chairman Walter Wriston famously explained the math: "You are lending money at 12 percent and paying 20 percent". The bank's credit card unit, employing 3,000 people, was on the brink of collapse. In a direct parallel to today's debate, Citibank's response was to threaten relocation. When New York lawmakers refused to raise the rate ceiling, the bank used a Supreme Court ruling to its advantage and set out on a search for a new place to base its credit card division.

The outcome was a landmark shift in the regulatory landscape. Citibank found a willing partner in South Dakota, which was actively seeking economic development. The state passed an emergency bill inviting the bank, and in a deal that would become the blueprint for the modern card industry, Citibank agreed to bring jobs in exchange for the right to operate under South Dakota's more favorable laws. This move was not just about Citibank; it brought 3,000 high-paying jobs to South Dakota and a host of new suitors from banks across the country. The Marquette decision, which allowed national banks to export rates from their home state, effectively created a regulatory arbitrage that reshaped the entire sector.

The key lesson from that episode is that caps can force lenders to exit or reprice risk, often at the expense of higher-risk borrowers. When the cost of capital exceeds the capped return, the business model breaks. The modern card industry has evolved with sophisticated risk pricing and a regulatory framework built on state-based rules, a direct legacy of that 1980s crisis. Today, many credit card companies are based in either Delaware or South Dakota, a structural feature that allows them to offer products nationwide under more favorable state laws. This framework provides a buffer against a sudden, nationwide cap, but it does not eliminate the core tension. If a 10% cap were imposed, the same dynamic could play out: lenders would either exit the higher-risk segments of the market or reprice them through fees and stricter underwriting, potentially reducing access for subprime borrowers. The historical precedent shows that credit markets are resilient, but they adapt by changing who gets credit and on what terms.

Financial Impact: Assessing the Profitability Threat

The proposal directly attacks the engine of bank profitability. Credit card operations are a major profit center, but even they are under pressure. The Federal Reserve's latest report shows the return on assets (ROA) for these operations fell to 3.33% in 2023, down from 4.70% in 2022. This decline reflects ongoing revenue headwinds, a trend analysts expect to continue through at least 2026.

Yet recent performance offers a counterpoint. In the second quarter of 2025, the industry showed resilience. Net credit loss rates rebounded sharply, and card receivables grew to near historic highs of $1.458 trillion. This suggests the business is still generating significant revenue from high balances, with the average cardholder carrying a balance of about $5,300. That revenue is built on two pillars: high interest income and substantial interchange fees.

A forced cap to 10% would dismantle the first pillar. Analysts estimate the move would swing the business to unprofitable. The math is straightforward: if the cost of funding the loan exceeds the capped interest rate, the lender loses money on every dollar extended. This would be especially brutal for subprime borrowers, who are already the most vulnerable to high rates. As one note puts it, subprime credit cards would be hardest hit. Lenders rely on the extra interest income from these riskier loans to offset higher default rates. Without it, they would likely pull back on lending to this segment, reducing credit availability for those who need it most. The profitability threat is real, and it would hit the weakest borrowers first.

Borrower Impact: Testing the Negative Consequence Claim

The core claim is that a rate cap would harm borrowers by reducing credit availability. History provides a clear warning. In the 1980s, Citibank faced a crisis when New York state usury laws and double-digit inflation rates made its credit card business unprofitable. Chairman Walter Wriston's response was to threaten relocation, a move that ultimately forced a state to change its laws. The lesson is direct: when the cost of capital exceeds the capped return, lenders exit or reprice risk, often at the expense of higher-risk borrowers. The modern card industry's sophisticated risk pricing and its regulatory framework-built on state-based rules and the legacy of the Marquette decision-were a direct response to that kind of pressure. They create a buffer, but they do not eliminate the fundamental tension.

Today's framework may limit the direct negative impact seen in the 1980s. The industry's ability to operate under favorable state laws means a nationwide cap would force a different kind of adaptation. Lenders could still exit the higher-risk segments of the market or reprice them through higher fees and stricter underwriting. This dynamic is not fully captured by the historical analog. The key uncertainty is what borrowers would do next. Would they shift to less accessible credit products like buy-now, pay-later services or pawn shops, or simply absorb higher fees? The historical precedent suggests access would contract, but the modern financial landscape adds complexity.

Yet the claim is not monolithic. Some consumers carrying existing balances could see short-term relief from lower interest charges. As one note points out, some consumers carrying existing balances could see short-term relief from lower interest charges. This creates a split in the impact: immediate benefit for those already in debt versus a potential long-term reduction in credit access for new or struggling borrowers. The bottom line is that the negative consequence claim holds structural weight, but the modern context introduces variables that historical episodes alone cannot predict. The outcome hinges on how borrowers and lenders navigate the new economic reality, a dynamic that history suggests will favor those with the most creditworthy profiles.

Catalysts and Scenarios: What to Watch

The immediate market reaction has priced in the threat, but the real test is what happens next. The proposed January 20 start date is a clear signal: this is a political deadline, not a legislative one. As analysts noted, such a measure could only be enacted by Congress, making the timeline impossible for a formal law. The move is a pressure tactic, designed to force a debate and signal affordability concerns to voters.

The first major catalyst will be any formal legislative proposal. Watch for the introduction of bills like S. 381 and H.R. 1944 in the 119th Congress, which would cap rates at 10%. The key signal will be bipartisan support. The 118th Congress saw debate on related card fee and fraud liability bills, but a rate cap faces steeper opposition from Wall Street and the credit card industry, which donated heavily to Trump's campaign. The strength of that opposition and the willingness of lawmakers to buck it will determine if the proposal gains traction.

Simultaneously, monitor bank lobbying efforts and public statements. Major card issuers will likely detail potential compliance strategies, such as scaling back rewards or tightening underwriting. Their messaging will be crucial in shaping the narrative and influencing lawmakers. The industry's message is clear: the plan would bring unintended consequences for consumers and the economy.

The key risk is not the cap's passage, but the market's perception of regulatory overreach. Even if the policy fails, the episode has already pressured valuations, with shares of major banks and card networks falling sharply. This shows how sensitive the sector is to regulatory uncertainty. The bottom line is that the political catalyst is a headline, but the market's reaction reveals a deeper vulnerability to any perceived threat to its high-margin lending business.