US banks warn 10% rate ceiling could squeeze credit and reshape rewards economics
A surprise push from Washington to cap credit card interest rates at 10 percent for a year has hit US financials and raised fresh questions about the profitability and structure of card lending, according to CNBC.
US President Donald Trump used his Truth Social account to call for a one‑year 10 percent ceiling on credit card interest rates starting 20 January, repeating a campaign pledge and saying the American public would no longer be “ripped off” by credit card companies.
He later told reporters that banks that do not comply would be “in violation of the law,” although he has not outlined how the cap would work or whether it would cover existing balances.
Reuters reported that the announcement blindsided lenders and some government officials and helped drive financial stocks lower.
On Tuesday, the S&P 500 financial sector fell 1.8 percent, while the S&P 500 banking index dropped more than 2 percent, with JPMorgan, Visa and Mastercard among the biggest decliners.
The selloff added to losses from Monday, when Capital One, Synchrony Financial, Citigroup, JPMorgan Chase, Bank of America, American Express, Wells Fargo, Visa and Mastercard all moved lower after the proposal first surfaced, according to CNBC.
JPMorgan executives have led the industry response.
CEO Jamie Dimon and CFO Jeremy Barnum warned that a 10 percent cap would “severely hurt” consumers and force banks to cut back credit, Reuters reported.
Barnum said it would be “very bad for consumers, very bad for the economy” and argued the plan would have the “exact opposite consequence” of what the administration wants.
He also told reporters that if “weakly‑supported directives” forced radical changes to the business, “everything is on the table,” including potential legal action.
Industry groups have framed the cap as a threat to credit access and rewards economics.
The Electronic Payments Coalition said 82 percent to 88 percent of open credit card accounts would be closed or “severely restricted” under a 10 percent cap, with subprime borrowers hit hardest and most cardholders facing higher annual fees, reduced rewards and more monthly account charges.
The Wall Street Journal noted that banks say rewards are funded by overall issuer profits, including interest, and warned that smaller bonuses, tighter eligibility, weaker redemption values and new or higher annual fees—especially on simpler cash‑back cards—would be likely if revenue falls.
Critics of the industry dispute that the system cannot absorb lower rates.
Reuters reported that Brian Shearer of Vanderbilt Policy Accelerator said there is “a huge amount of profit” that could absorb a rate cut.
A Vanderbilt study cited by Reuters estimated that a 10 percent cap would save borrowers about US$100bn a year in interest, with only a modest impact on rewards and accounts.
The Wall Street Journal also said such a cap could push issuers to focus even more aggressively on premium, high‑spend customers with strong credit profiles, while shrinking options for lower‑score borrowers.
The political path remains uncertain.
CNBC noted that any cap would require congressional approval, and that bipartisan bills to cap card rates at 10 percent have been introduced before.
At the same time, Reuters reported that a senior industry executive does not expect the Senate to advance a bill and that some lawmakers in both parties oppose the current proposal.
US House Speaker Mike Johnson has called for exploring the idea but warned of “negative secondary effects,” while long‑time advocates like Elizabeth Warren and Bernie Sanders continue to argue that current rates are exploitative.
Macro conditions are, for now, supportive of financial markets overall.
US inflation data showed the Consumer Price Index rising 0.3 percent in December and 2.7 percent year‑over‑year, with core CPI up 0.2 percent on the month, in line with expectations and reinforcing the view that the Federal Reserve has room to cut rates this year.
