Trump's Credit Card Rate Cap and Its Implications for Big Bank Earnings

The financial sector is bracing for a seismic shift as President Donald Trump's proposed 10% cap on credit card interest rates-set to take effect in January 2026-sparks intense debate over its feasibility, political viability, and economic consequences. This policy, framed as a consumer protection measure, could reshape the profitability of major banks like JPMorgan Chase, Citigroup, and Bank of America, while testing the limits of regulatory authority and congressional cooperation.

Political Risk: A Divided Landscape

Trump's proposal has drawn both bipartisan support and fierce industry opposition. Republican Senator Roger Marshall has endorsed the cap, arguing it will "lower costs for American families" and curb "greedy credit card companies" according to PBS NewsHour. However, the American Bankers Association and the Bank Policy Institute warn that such a move would reduce credit access for high-risk borrowers, potentially pushing them toward predatory alternatives like payday loans as reported by PBS NewsHour. Meanwhile, legal experts question whether the policy can be enacted without congressional legislation. Former NCUA Chairman Dennis Dollar emphasized that the president lacks unilateral authority to impose a nationwide interest rate cap, asserting that "any binding regulation would require congressional action" according to CutNews. This ambiguity creates significant political risk, as the proposal's success hinges on navigating a polarized Congress and potential legal challenges.

Regulatory Feasibility: A Legal Quagmire

The regulatory pathway for Trump's cap remains murky. While the president has hinted at executive action, analysts argue that a 10% cap would require legislative backing to be enforceable as Payments Dive reports. Historical precedents, such as the 2009 CARD Act, demonstrate that meaningful credit card reforms necessitate congressional collaboration. The CARD Act's "ability-to-pay rule" reduced fees and interest rates but faced industry resistance and required years of negotiation according to Boston Fed research. Trump's one-year cap, though shorter in duration, faces similar hurdles. Without clear regulatory authority, the proposal risks being struck down in court or diluted through legislative compromise. This uncertainty complicates investment decisions, as market participants weigh the likelihood of implementation against potential sector-wide disruptions.

Sector Resilience: Revenue Impacts and Adaptation

The financial sector's resilience to a 10% cap will depend on its ability to offset lost interest income. Credit card interest currently accounts for a substantial portion of banks' revenue, with subprime borrowers paying rates as high as 30%. A Vanderbilt University study estimates that the cap could save consumers $100 billion annually while still allowing banks to remain profitable as Boston Fed research shows. However, industry groups counter that reduced margins will force banks to tighten lending standards, cut rewards programs, or withdraw from high-risk markets according to StockTwits analysis. For instance, JPMorgan Chase, which reported $3.4 billion in credit losses in Q3 2025, may need to adjust its underwriting criteria to maintain profitability as StockTwits reports.

Historical data offers mixed insights. During the 1980s, deregulation of interest rate caps led to a wave of thrift failures due to excessive risk-taking as FDIC reports. Conversely, the Fed's rate cuts in the 2010s boosted financial sector returns by 7.3% over six months, outperforming the broader market according to ETF Trends analysis. These precedents suggest that while banks can adapt to regulatory shifts, abrupt changes like a 10% cap could trigger short-term volatility.

Balancing Act: Consumers, Banks, and the Economy

The proposal's ultimate impact will hinge on its implementation. If enacted, the cap could reduce consumer debt burdens but may also shrink credit availability, disproportionately affecting lower-income households as PBS NewsHour notes. For banks, the challenge lies in balancing profitability with compliance. Institutions like Bank of America might pivot to alternative revenue streams, such as merchant fees or wealth management, to offset lost interest income according to PBS NewsHour. However, such transitions take time, and the sector's near-term earnings could face downward pressure, particularly in Q4 2025 and Q1 2026 as BPI reports.

Conclusion

Trump's credit card rate cap represents a high-stakes experiment in financial regulation. While the policy's consumer benefits are clear, its regulatory feasibility and political viability remain uncertain. For investors, the key risks lie in the potential for legal challenges, legislative gridlock, and sector-wide earnings volatility. Banks with diversified revenue streams and robust risk management frameworks may weather the transition better than those reliant on high-interest lending. As the debate unfolds, stakeholders must monitor both the policy's trajectory and the industry's adaptive strategies to navigate this pivotal moment in financial regulation.