President Trump's proposed 10% cap on credit card interest rates sounded like a win for consumers when the administration pitched it as populist relief. But this week, America's banking giants made it crystal clear they think the plan would blow up in everyone's face.
During fourth-quarter earnings calls, top executives from the nation's largest financial institutions issued stark warnings: impose that rate cap, and millions of Americans will find themselves locked out of credit entirely. Oh, and there might be an economic slowdown too.
The Basic Problem With Price Controls
Citigroup Inc. (C) outgoing CFO Mark Mason didn't mince words when reporters asked about the proposal on Wednesday. "An interest rate cap is not something that we would or could support, frankly," Mason said. He warned the mandate would "likely result in a significant slowdown in the economy."
Mason tried to soften the blow slightly, acknowledging that "affordability is clearly an important issue" and saying Citigroup "looks forward to collaborating with the administration" on alternative solutions. Translation: we hear you, but this ain't it.
Who Actually Loses Access?
JPMorgan Chase & Co. (JPM) CFO Jeremy Barnum laid out the mechanics of what would actually happen. Instead of making debt cheaper for everyone, the cap would simply make debt unavailable for the riskiest borrowers—precisely the people the policy is supposedly designed to help.
"What's actually simply going to happen is that the provision of the service will change dramatically," Barnum explained. "Specifically, people will lose access to credit, like on a very, very extensive and broad basis, especially the people who need it."
Barnum called the proposal a "severely negative consequence for consumers" and the national economy. His argument boils down to Economics 101: "Instead of lowering the price of credit, it will simply reduce the supply of credit."
Even Airlines Are Worried
The concern isn't limited to banks. Delta Air Lines, Inc. (DAL) CEO Ed Bastian chimed in, warning that the cap could "upend the whole credit card industry." His worry? The policy would "restrict the lower-end consumer from having access to any credit," potentially threatening the rewards and loyalty programs that millions of travelers depend on.
Bank of America Corp. (BAC) CEO Brian Moynihan joined the chorus, framing the issue as an unavoidable trade-off. "If you bring the caps down, you're going to get restricted credit, meaning less people will get credit cards, and the balance available to them on those credit cards will also be restricted. And so you have to balance that against what you're trying to achieve on affordability," Moynihan said.
What Happens Next
Trump's proposal calls for capping rates at 10% for a one-year period and has become a central piece of his economic agenda. The current market average for credit card rates sits well above that threshold, which is precisely why banks say the math doesn't work.
With Wall Street's heaviest hitters signaling complete opposition, the administration faces a significant challenge. The banking sector isn't exactly known for backing down when it comes to protecting its business model, and these earnings call warnings suggest they're preparing for a fight.
