If you think capping credit card interest rates at 10% sounds like consumer-friendly policy, Capital One Financial Corp. (COF) CEO Richard Fairbank has some bad news for you. During Thursday's fourth-quarter earnings call, he laid out why President Donald Trump's proposal might actually hurt the very people it's designed to help—and potentially drag the entire economy down with it.

Why Price Controls Don't Work the Way You'd Think

Fairbank's core argument is pretty straightforward: "Putting a price control in place" won't make credit more affordable. Instead, it'll make credit "less available for consumers, up and down the credit spectrum." Translation? Banks won't just eat the cost. They'll respond by drastically cutting who gets access to credit in the first place.

"This is far more than a subprime issue," Fairbank emphasized. He warned that banks would be "compelled to immediately slash credit lines, restrict accounts, and limit new originations to a very small subset of consumers." If you're thinking this only affects people with spotty credit, think again. The ripple effects would touch nearly everyone.

The $6 Trillion Problem

Here's where the stakes get serious. Fairbank pointed out that "consumers are the backbone of the American economy," with consumer spending driving 70% of U.S. GDP. And here's the kicker: "$6 trillion of that spending is on credit cards."

A "material contraction in available credit would likely cause shocks throughout the economy," he said, warning that the resulting spending pullback "would likely bring on a recession." It's not just about individuals losing their plastic—it's about what happens when that much purchasing power suddenly evaporates from the system.

The collateral damage would extend far beyond banks. Retailers, airlines, and hotels that depend on card programs would take hits. And for many Americans, "a credit card is their only access to credit" and serves as "many consumers' initial entry point into building a credit history."

"We feel strongly that a cap on interest rates would catalyze a number of unintended consequences," Fairbank concluded.

Capital One Has Skin in This Game

To be fair, Capital One isn't exactly a neutral observer here. Analysts consider the company "among the most vulnerable" to interest rate caps because of its heavy reliance on revolving credit card balances and net interest income. The numbers tell the story: Capital One reported $279.6 billion in period-end credit card loans, representing the largest chunk of its $453.6 billion total loan portfolio.

Other Voices Sound the Alarm

Fairbank isn't alone in his concerns. JPMorgan Chase & Co. (JPM) CEO Jamie Dimon warned at the World Economic Forum in Davos that the proposal "would remove credit from 80% of Americans," calling it an "economic disaster" in the making.

John Garner, founder and CEO of banking rewards platform Odynn, told reporters that consumers with less-than-perfect credit would feel the pain first. "A 10% APR cap sounds great at first, but the downsides hit fast," he said. "This isn't leveling the playing field—it's shrinking it."

Meanwhile, Capital One Misses Earnings

The timing of these warnings is notable. Capital One released fourth-quarter results Thursday showing $15.58 billion in revenue, up 52.92% year-over-year and beating consensus estimates of $15.48 billion. But the company missed on earnings, reporting $3.86 per share versus analyst expectations of $4.11 per share.

The stock dropped 3.31% in after-hours trading, despite closing up 1.76% at $235.07 during the regular session. Whether investors are reacting to the earnings miss, the regulatory uncertainty, or both is hard to say—but the market clearly isn't thrilled.

The big question now is whether Trump's proposal gains traction or remains a talking point. If it moves forward, we might find out whether Fairbank's recession warnings were prescient or overblown. Either way, the credit card industry is watching very, very closely.