The banking industry has cited “subprime credit risk” as the primary reason for opposing Donald Trump’s new 10% cap on credit card interest rates. Following Trump’s announcement on Truth Social that the cap would begin on January 20, major financial associations released a statement warning of a potential disaster. They argued that a 10% rate is simply not high enough to cover the potential losses from lending to borrowers with lower credit scores.
The logic is simple: banks charge higher rates to riskier borrowers to offset the chance that they won’t pay back the loan. If the rate is capped at 10%, that math breaks down. Banks warned that they would be forced to stop lending to these consumers entirely to avoid losing money. This would mean that millions of Americans who rely on credit cards for emergencies would lose access to them.
Trump’s proposal is driven by the desire to help these very consumers. With national credit card debt at $1.17 trillion, the burden of high interest rates is crushing. Trump framed the cap as a way to stop the “ripping off” of the public, blaming the Biden administration for the current rate environment.
However, investors like Bill Ackman agree with the banks. Ackman warned that the cap would lead to mass card cancellations, as companies move to protect their balance sheets. He argued that while the goal of lower rates is worthy, the method of a hard cap is flawed and will ultimately hurt the people it is meant to help.
Senator Elizabeth Warren also criticized the move, calling it a “joke” without legislative action. She argued that Trump is ignoring the complexities of the financial system in favor of a populist soundbite. As the debate continues, the fate of subprime borrowers hangs in the balance.