Trump's idea to cap credit card rates crashed US bank stocks
U.S. financial stocks declined in the premarket on Jan. 12 after U.S. President Donald Trump called for an annual cap on U.S. credit card interest rates, threatening a key source of revenue for banks and other lenders, Reuters writes.
On this news, shares of the largest U.S. banks - JPMorgan Chase and Bank of America - fell by 2.9% and 2.2%, respectively. Citigroup securities fell by 4.1%, and Wells Fargo - by 2.2%. In addition, shares of credit card issuer American Express fell by 4.5%, while the securities of payment systems Visa and Mastercard fell by 2% and 2.2%, respectively. Shares of consumer finance companies also fell: Synchrony Financial, Bread Financial and Capital One lost 8-11%.
Context
Last Friday, Jan. 9, Trump proposed a one-year cap on credit card interest rates in the U.S. at 10 percent starting Jan. 20, but did not provide details on how his plan would be implemented or how he plans to force companies to comply.
"Such a restriction <...> has the potential to divert some borrowers away from the banking sector to other types of unsecured credit - such as pawn shops and non-bank consumer lenders," J.P. Morgan analyst Vivek Juneja wrote, commenting on Trump's idea.
Imposing a ceiling on credit card interest rates would require legislation and may be beyond the scope of presidential authority, other analysts have pointed out, Reuters writes. "We rate the likelihood of such a cap being passed at the federal level as low - similar to previous attempts to enact a single national cap on credit card interest rates," Reuters quoted TD Cowen analysts as saying. Jefferies analysts supported this view, noting that such measures have not historically found support in Congress.
What else is important to know about credit card rates in the US
The average interest rate on credit cards in the U.S. is currently around 19.65%, according to data from Bankrate, a consumer financial services company, Reuters writes. Millions of Americans carry credit card debt from month to month. Lower-income households are more likely to use cards for everyday spending and tend to face higher interest rates, the agency notes. High rates mean that credit card debt can grow rapidly if consumers don't pay it off in full each month, Reuters notes.
This article was AI-translated and verified by a human editor
