The banking world is scrambling to assess the fallout after Donald Trump announced a controversial new policy to cap credit card interest rates at 10%. In a late-night post on Truth Social, the former president declared that the new limit would be effective starting January 20. He framed the decision as a necessary step to protect American consumers from being “ripped off” by financial institutions charging rates as high as 30%. This move directly challenges the revenue models of major credit card issuers and has sparked immediate debate about government intervention in the free market.
Industry leaders were quick to respond, warning that such a drastic reduction in interest rates could backfire on the very people Trump aims to help. A coalition of banking groups, including the American Bankers Association and the Consumer Bankers Association, issued a statement predicting that a 10% cap would force lenders to restrict credit availability. They argued that if banks cannot price for risk, they will simply stop lending to consumers with lower credit scores, effectively shutting millions of families out of the financial system.
The announcement comes at a time when consumer debt is at an all-time high. In the third quarter of 2024, U.S. credit card debt surged to $1.17 trillion, a massive increase from the $770 billion seen just a few years prior. Trump used these figures to justify his intervention, blaming the “Sleepy Joe Biden Administration” for allowing rates to spiral out of control. However, critics note that Trump did not provide any specific details on how he plans to enforce this cap without Congressional approval, leaving many to wonder if this is a concrete policy or a political bargaining chip.
Reaction from the investment community has been equally skeptical. Bill Ackman, a high-profile hedge fund manager and Trump supporter, publicly voiced his concerns on X (formerly Twitter). While he acknowledged the nobility of wanting to lower costs for Americans, Ackman warned that the mathematics of lending don’t support a 10% cap for subprime borrowers. He predicted that credit card companies would be forced to cancel cards en masse to avoid operating at a loss, potentially triggering a credit crunch for vulnerable households.
Politically, the move has created strange bedfellows. Senator Josh Hawley, a Republican populist, celebrated the announcement as a “fantastic idea,” aligning himself with Trump’s interventionist approach. Meanwhile, progressive Senator Bernie Sanders, who had just criticized Trump for failing to act on this exact issue, found his legislative agenda suddenly adopted by the president. Senator Elizabeth Warren, however, remained unimpressed, dismissing the announcement as an empty gesture without a solid plan to pass binding legislation.