Trump Credit Card Rate Cap: Would a 10% Ceiling Ease America's Debt Crisis?

American consumers are grappling with unprecedented credit card debt, and a contentious policy proposal from President Donald Trump has thrust the issue into the national spotlight. The President has suggested imposing a temporary 10% ceiling on credit card interest rates, effective for one year from his inauguration date, a move designed to provide relief to millions of households struggling with mounting balances.

The scale of the problem is substantial. Outstanding credit card debt across the United States has surpassed $1 trillion, with more than a third of adults carrying balances month to month. Interest rates on these accounts have climbed dramatically, reaching an average of 22% by November of last year, compared to just 13% a decade earlier, according to Federal Reserve statistics.

Selena Cooper, a 26-year-old former paralegal from Columbia, South Carolina, exemplifies the challenges facing many Americans. After losing her position with the Social Security Administration during recent government shutdowns, she accumulated $6,000 across three credit cards. When she began missing payments in October, her issuers responded by raising her rates substantially. Capital One doubled her rate to 16%, whilst American Express increased hers from 10% to 18%.

Cooper now relies on income from her photography business, though it generates insufficient revenue to address her card balances. Whilst she welcomes the proposed rate cap, she acknowledges it would offer only limited relief rather than a complete solution to her financial predicament.

The banking sector has responded to Trump's proposal with immediate and forceful opposition. Financial institutions argue that constraining interest rates would fundamentally alter their ability to extend credit, particularly to consumers with lower credit scores or higher risk profiles. Banks earned approximately $160bn from credit card interest charges in 2024, according to figures from the Consumer Financial Protection Bureau, making this a significant revenue stream.

Jeremy Barnum, chief financial officer at JP Morgan, warned during the bank's Monday earnings call that implementation would cause widespread loss of credit access, affecting those most in need. The institution has suggested legal challenges may follow if the measure advances. Citigroup chief executive Jane Fraser echoed these concerns, predicting severe consequences for credit availability and consumer spending nationwide.

Portfolio manager Susan Schmidt of Exchange Capital Resources in Chicago notes that the proposal reflects the administration's recognition of consumer financial pressure. However, she questions whether a blanket rate ceiling represents the optimal solution, particularly for those already experiencing serious debt difficulties.

Financial experts present mixed assessments of the policy's likely outcomes. Benedict Guttman-Kenney, who teaches finance at Rice University, suggests banks may respond by restricting lending to applicants with weaker credit histories, the demographic most vulnerable to losing card access entirely. He anticipates financial institutions might seek alternative revenue sources, potentially increasing annual fees or late payment charges to offset lost interest income.

Guttman-Kenney does acknowledge that banks maintain certain discretionary expenses that could be reduced, such as marketing budgets, potentially allowing them to preserve profit margins despite lower interest revenues. The question of whether consumers would ultimately benefit remains uncertain, he argues, if they end up paying similar total amounts through different fee structures.

Research from Vanderbilt University offers a contrasting perspective. A recent study calculated that American households would collectively save roughly $100bn annually in interest expenses under a 10% rate cap. Brian Shearer, the Vanderbilt Policy Accelerator researcher who authored the analysis, contends these savings would meaningfully improve family budgets.

Shearer challenges the banking industry's assertion that rate reductions must inevitably produce proportional lending contractions. He points to substantial profit margins in the credit card sector and notes that interest payments constitute only one component of bank revenues from card operations. Whilst acknowledging that lenders might need to scale back rewards programmes, especially for lower credit score holders, he maintains that interest savings would substantially exceed any lost benefits.

Another consumer facing significant card debt is Morgan, a 31-year-old who preferred to use only her first name. Unemployed since last May, she has charged approximately $6,700 to her Discover card to cover childcare costs for her two-year-old daughter. Her husband, employed in the military, handles other household expenses. Through a service member assistance programme, Morgan secured a roughly 3% interest rate. Without this benefit, she states, childcare would have been financially impossible at standard rates approaching 27%.

Despite her anxiety over the accumulated balance, Morgan views the manageable interest rate as providing breathing room until she secures employment. She considers Trump's rate cap proposal a positive development that prioritises individuals over corporate interests, expressing hope it will be enacted.

The concept of capping credit card interest rates has circulated in legislative discussions for several years, attracting support across party lines. Republican Senator Josh Hawley and Democratic Senator Bernie Sanders jointly introduced legislation last year proposing a 10% ceiling. Democratic Senator Elizabeth Warren disclosed that she spoke with Trump this week, encouraging him to actively champion the measure and leverage his political capital to secure congressional passage.

Despite this bipartisan interest, significant obstacles remain. House Speaker Mike Johnson distanced himself from the proposal this week, citing concerns about unintended consequences and potential lending reductions. Johnson indicated lawmakers must proceed carefully with such measures.

The banking sector appears prepared to mount sustained opposition. Shearer suggests that aggressive industry lobbying represents the primary threat to the proposal's advancement, describing credit card interest as a revenue source financial institutions will vigorously defend.‍

Industry impact and market implications:

A 10% credit card rate cap would fundamentally reshape the consumer lending market, potentially triggering strategic shifts across the banking sector. Major issuers such as JP Morgan, Citigroup, Capital One and American Express derive substantial income from interest charges, which totalled $160bn industry-wide in 2024. If implemented, banks would face pressure to restructure their credit card business models, likely leading to tighter underwriting standards that could reduce approval rates for applicants with moderate to lower credit scores.

Financial institutions may seek to offset revenue losses by adjusting fee structures, including higher annual fees, increased late payment penalties, or reduced rewards programmes. This could alter competitive dynamics in the sector, potentially favouring larger banks with diversified revenue streams over smaller institutions more dependent on interest income. Credit card portfolios might be re-evaluated for risk, with some banks choosing to exit certain market segments or reduce credit limits for existing customers.

The policy could also influence investor sentiment towards banking stocks, particularly those with significant credit card exposure. Companies with robust capital markets operations or diversified business lines may be better positioned to absorb margin compression. Consumer-facing retailers offering co-branded cards might need to renegotiate partnerships with issuing banks. Fintech lenders and alternative credit providers could face similar pressures if the cap extends beyond traditional banks, potentially slowing innovation in consumer credit products.

From a macroeconomic perspective, reduced credit availability could dampen consumer spending in the near term, though lower interest burdens might boost household disposable income over time. The net effect on economic growth remains uncertain and would depend on implementation details and the banking sector's response. Regulatory developments and potential legal challenges will be critical factors for stakeholders monitoring this policy debate.