(LR) Charles Scharf, CEO and President of Wells Fargo, Thomas Moynihan, Chairman and CEO of Bryan Bank of America, Jamie Dimon, Chairman and CEO of JPMorgan Chase, Jane Fraser, CEO of Citigroup, and Ronald O’Hanley of State Street. – CEO Robin Vince of BNY Mellon, David Solomon, CEO of Goldman Sachs, and James Gorman, CEO of Morgan Stanley, testify at the Senate Banking, Housing, and Urban Affairs Wall Street Oversight Hearing Committee on December 6, 2023, at the Capitol in Washington, DC.
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Bank executives were left panicking over the weekend after President Donald Trump announced late Friday that he would put a 10% cap on the interest rates that U.S. credit card companies can charge customers.
The move sent shares of major banks, including Citigroup, JPMorgan Chase, Wells Fargo and Bank of America, down 1% to 4% in premarket trading Monday. Companies with strong ties to the credit card industry also fell, including Visa, MasterCard and American Express. Capitol One, whose loan book is largely credit card, fell 7% in premarket trading.
President Trump has proposed imposing a one-year cap on interest rates starting January 20th. It’s unclear how exactly it will be enforced, but the industry message is clear that the plan will have unintended consequences for consumers and the U.S. economy.
The move will make a significant portion of the credit card industry unprofitable, especially those related to customers with less-than-ideal credit profiles, banks and analysts said. Rather than offering consumers a loss-making product, the industry will not only stop providing access to customers with subprime credit, but also make a number of other changes to card programs, including reducing benefits, the people said.
They say consumers will cut back on spending or rely on other forms of unsecured debt.
“We can’t offer products at a loss. There’s no scenario where we take the entire portfolio to 10%,” said a person familiar with a major bank’s operations, speaking on condition of anonymity to speak candidly. “The idea that this is going to cause the economy to deteriorate rapidly is not an exaggeration.”
Industry trade groups issued a joint statement late Friday making their case.
“Evidence shows that a 10% interest rate cap would reduce credit availability and be devastating for the millions of American families and small business owners who rely on and value credit cards—the very consumers this proposal seeks to help,” the trade group said.
Complicating matters is the uncertainty for bankers about how President Trump’s interest rate cap will be set. Tobin Marcus, head of U.S. policy at Wolfe Research, said the simplest approach, through legislation in Congress, would not be possible before the proposed Jan. 20 start date.
Other enforcement avenues are also available through banking regulators, including the Consumer Financial Protection Bureau. But the Trump administration has repeatedly tried to shut down the agency, and the industry has been successful in defeating the CFPB’s rules through the courts.
“I’m not aware of any authority they have available to do this unilaterally in any across-the-board way,” Marcus said.
“As far as I’m concerned, telling people they have until January 20th is an attempt to pressure them into doing it voluntarily,” he said.
This story is developing. Please check back for the latest information.
