US banking stocks suffered sharp declines after President Donald Trump announced a proposal to cap credit card interest rates at 10% for one year, threatening to eliminate billions in profits from one of the industry's most lucrative segments.

Major Banking Stocks Hit Hard

Capital One Financial Corp., the largest US card issuer, experienced the most severe impact, tumbling 6.4% in New York trading—marking its biggest decline in nine months. The drop came after Trump surprised the industry with the rate cap proposal, which he indicated could take effect as early as next week.

Industry Impact and Economic Concerns

Credit card interest rates have been hovering above 20% in recent years, making them a target for lawmakers across party lines. Trump set a January 20 deadline for companies to comply or risk being "in violation of the law."

Mike Mayo, an analyst at Wells Fargo & Co., warned that the cap "could wipe out earnings from cards for a year" and "would ruin card economics (eliminate most of card earnings today)." He noted that incentives would shift toward stopping lending altogether.

Broader Market Effects

The proposal's impact extended beyond traditional banks to related sectors:

Payment Networks:

• Visa Inc. and Mastercard Inc. shares also declined, despite not being card issuers themselves
• These companies rely on fees generated from consumer card usage

Airlines with Card Partnerships:

Retailers with Card Portfolios:

• Macy's Inc. fell 5.4%
• Kohl's Corp. dropped 3.9%

Analyst Skepticism and Industry Response

Several analysts questioned the likelihood of the proposal's approval, citing the banking industry's strong influence in Congress and limited legislative momentum. Brian Foran, an analyst at Truist Financial Corp., noted that "given how severe it is, it is hard to imagine it moving forward."

Industry groups including the Bank Policy Institute and Consumer Bankers Association responded with measured opposition, stating they "share the president's goal of helping Americans access more affordable credit" while warning that a 10% cap "would reduce credit availability and be devastating for millions of American families and small-business owners."

Consumer Impact and Alternative Lending

Analysts predict that lower-income consumers would face the most significant impact as banks restrict loan access. KBW Inc. analyst Sanjay Sakhrani noted that as credit availability becomes curtailed, consumers would need to rely on alternative lending sources that are "significantly more expensive" for borrowers.

The proposal could potentially benefit buy-now, pay-later firms such as Klarna Group Plc and Affirm Holdings Inc. if traditional credit card availability decreases, though both companies' shares also declined on Monday—Klarna fell 2.7% and Affirm lost 6.6%.

International Impact

The proposal also affected international banks with US credit card exposure. Barclays Plc, the British lender that relies on credit cards as a key component of its US consumer banking business, slumped 2.4% in London trading, marking the firm's biggest loss since November 18. Bloomberg Intelligence noted that any US cap on credit card rates would hit Barclays hardest among European banks, with the lender's US consumer bank expected to generate £3.60 billion in revenue during 2025.

Credit card company stocks faced significant pressure during early US market trading on January 13, 2025, as investors reacted to Trump's announcement of a 10% cap on credit card interest rates. The proposed regulatory change has created uncertainty across the financial services sector, particularly affecting companies with substantial credit card operations.

Market Impact on Major Credit Card Companies

Several prominent financial institutions experienced stock price declines as the market opened. The affected companies represent some of the largest players in the US credit card market:

Industry Response to Interest Rate Cap

The proposed 10% interest rate cap represents a significant regulatory development for the credit card industry. Current credit card interest rates often exceed this threshold, making the potential implementation a material concern for industry profitability. The market reaction reflects investor uncertainty about how such restrictions might affect revenue streams and business operations across the sector.

Broader Financial Sector Implications

The stock declines highlight the sensitivity of financial services companies to regulatory changes affecting their core business models. Credit card operations typically generate substantial revenue through interest charges, and any caps on these rates could require companies to adjust their risk assessment practices and pricing strategies to maintain profitability.