Trump’s Call for Credit Card Rate Cap Sends U.S. and UK Banks Tumbling

U.S. financial stocks and UK-listed lenders fell sharply on Monday after President Donald Trump proposed a one-year cap on credit card interest rates, threatening a significant revenue stream for the sector. Investors are now weighing the impact of the proposal amid ongoing interest-rate uncertainty, a development that may undercut the potential boost from a rotation into value stocks.

On Friday, Trump called for a 10 per cent cap on credit card interest rates starting January 20, though he did not provide details on how companies would be required to comply. The announcement sent shares of major U.S. lenders tumbling in early trading, with JPMorgan Chase down 2.5 per cent and Bank of America declining 1.6 per cent. Citigroup fell 3.7 per cent, while Wells Fargo lost 1.5 per cent. Analysts, however, expressed doubt that such a cap could be implemented, noting that Congress would need to enact any rate restrictions and that passage was unlikely. “It would take an Act of Congress for such rate caps to be in place, given the overwhelming legal challenges an executive order would likely ‍face,” analysts at UBS Global wrote in a note.

Across the Atlantic, British bank Barclays’ shares hit their lowest level in nearly a month, finishing down 2.2 per cent. U.S. consumer finance firms were hit even harder, with Synchrony Financial, Bread Financial, and Capital One dropping between 8 per cent and 11 per cent. American Express tumbled 3.8 per cent, while payment processors Visa and Mastercard fell 1.8 per cent each.

Trump’s announcement is widely seen as a bid to address public concern over the rising cost-of-living and as a revival of a prior campaign pledge. “It is not surprising to see Trump re-visit the ‌idea as ‘affordability’ ‌has become a top concern among the U.S. voting base,” Seaport Research analyst Bill Ryan noted.

Analysts cautioned, however, that the plan could have unintended consequences for borrowers. “This rate cap would not address the root of the problem and could push consumers towards more expensive debt. It could ⁠push more borrowing away from banks ⁠into other unsecured loans such as pawn shops and other non-bank consumer lenders,” J.P. Morgan analyst Vivek Juneja wrote. Lenders may be forced to reduce credit limits or close accounts for lower-credit borrowers, complicating consumer access to credit.

Credit cards are traditionally among the costliest forms of borrowing due to their unsecured nature, leaving lenders exposed to higher default risk. According to the Federal Reserve’s consumer credit report, average interest rates on credit cards in November stood at 20.97 per cent.

Investors will closely monitor commentary from bank executives as the industry begins reporting fourth-quarter results this week. JPMorgan is set to release its earnings on Tuesday, followed by Bank of America, Citigroup, and Wells Fargo later in the week.

By fLEXI tEAM