President Donald Trump has put forward a proposal to impose a temporary one-year limit on credit card interest rates at 10%, a move aimed at capping what borrowers currently pay on credit card balances. This proposal, however, has generated little enthusiasm among investors and traders on Wall Street, as noted by financial analyst and TV host Jim Cramer during his CNBC program "Mad Money" on Monday.
Cramer explained that for the 10% interest rate cap to become law, it would require formal legislative approval from Congress, which at present has not been secured. Nonetheless, he suggested that the former president might attempt to pressure bank executives to voluntarily comply with this directive before the target date of January 20, 2026, through public admonishment or other informal means.
Despite the announcement, the financial markets showed limited concern, with banking stocks initially opening with losses but subsequently recovering closer to previous levels throughout the trading day. According to Cramer, the apparent lack of alarm in the market may stem from perceptions that the proposal is overly ambitious and unlikely to come to fruition in its proposed form.
However, Cramer issued a clear warning regarding the consequences of instituting such an interest rate ceiling. He emphasized that capping rates at 10% would significantly alter the risk-reward equation for credit issuers, particularly when extending credit to subprime borrowers who traditionally pay higher rates to offset increased risk. If such a cap were enacted, lenders might curtail credit availability to millions of Americans who currently rely on higher-rate cards, effectively shutting off access to this form of borrowing for many.
This reduction in credit access could carry broader economic implications, as Cramer warns the policy might lead to a contraction in credit flows. Such a scenario poses risks of financial strain for consumers and potential ripple effects in the broader economy if lending activity diminishes sharply.
The banking sector's reaction to the proposal was mixed but generally negative by the close of trading on Monday. Stocks of financial institutions with significant exposure to credit card operations suffered notable declines. For instance, Capital One Financial Corp. (NYSE: COF), which generates the majority of its revenues from credit card services, recorded a steep drop of 6.42% on the day. Other major banks such as JPMorgan Chase & Co. (NYSE: JPM), American Express Co. (NYSE: AXP), Citigroup Inc. (NYSE: C), and Bank of America Corp. (NYSE: BAC) also ended the day with losses ranging from around 1% to near 4%.
Industry groups including the Bank Policy Institute, American Bankers Association, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America jointly expressed concerns through a formal statement. They highlighted that enforcing a 10% cap on credit card interest could lead to tighter credit conditions, limiting consumer access to credit and potentially impacting economic activity.
While the financial markets have not reacted with sustained volatility, the complexities and potential repercussions of implementing a 10% interest rate ceiling remain significant. The proposal's fate will depend heavily on Congressional deliberations and industry responses.