U.S. President Donald Trump has announced a proposal to cap credit card interest rates at 10% for one year starting January 20, but Wall Street analysts are expressing strong skepticism about the plan's viability. The proposal has generated significant attention but faces substantial legislative and implementation challenges that make its success unlikely.

Legislative Hurdles and Implementation Challenges

Analysts at TD Cowen emphasized that implementing such a rate cap would require Congressional action rather than executive authority. "While this represents an escalation of headline risks for credit card issuers, we believe that a card rate cap can only be done by Congress, not executive order," the analysts wrote in their research note. The brokerage assigned a low probability to the cap receiving legislative approval at the federal level, citing similarities to previous unsuccessful attempts to introduce broad national rate caps.

Barclays analysts echoed these concerns, stating that "the President has limited ability to implement this unilaterally." They noted that similar measures have previously failed to gain traction in both the Senate and the House of Representatives, suggesting a challenging path forward for the proposal.

Current Market Conditions and Impact

The proposed cap represents a significant reduction from current market rates. According to consumer financial services company Bankrate, the average credit card interest rate currently stands at approximately 19.65% in the U.S. This substantial gap between the proposed cap and existing rates highlights the dramatic nature of the suggested policy change.

Credit cards serve as a cornerstone of U.S. consumer finance, providing households with flexible access to credit. However, the high interest rates associated with these financial products can make carrying balances costly for consumers. For banks and card issuers, these elevated rates and associated fees represent a major source of profitability.

Consumer Impact and Political Context

The proposal emerges against a backdrop of growing political focus on affordability issues ahead of the U.S. mid-term elections. Voters are increasingly concerned about the cost of everyday necessities, making financial accessibility a central political theme. Millions of Americans carry credit card balances from month to month, with lower-income households particularly reliant on cards for everyday spending and more likely to face higher interest rates.

The high interest rate environment means that credit card balances can grow rapidly when consumers cannot pay them off each month, creating a cycle of debt that disproportionately affects financially vulnerable populations. Trump's proposal appears designed to address these concerns, though he has not provided detailed information about implementation mechanisms or compliance enforcement strategies.

Market Response and Industry Implications

While the proposal has created headline risks for credit card issuers, analysts maintain that the likelihood of implementation remains low. The credit card industry's significant contribution to bank profitability means that any successful rate cap legislation would have substantial implications for financial sector earnings and business models. However, the historical pattern of failed attempts to implement similar measures suggests that industry concerns may be premature.

US President Donald Trump has proposed a one-year cap of 10% on credit card interest rates, a significant policy initiative that could reshape the American consumer finance landscape. The proposal comes at a time when millions of Americans rely heavily on credit cards for everyday expenses, often paying interest rates that exceed 20% on unpaid balances. However, this remains a proposal requiring Congressional approval before implementation.

Current Credit Card Landscape in the US

Credit cards play a central role in American financial life, with approximately 74% of adults holding at least one credit card. The average American maintains three to four credit cards, contributing to more than 60 million active credit card accounts nationwide. This widespread usage has resulted in record-high consumer debt levels.

Potential Consumer Benefits

For consumers who do not clear their full monthly bills, the proposed 10% interest cap could deliver substantial savings. Currently, with average annual percentage rates ranging between 22% and 24%, many cardholders face significant interest burdens on carried balances. The rate cap could potentially reduce interest costs by tens of billions of dollars across the entire economy, providing meaningful relief to households managing credit card debt.

Banking Industry Impact

The proposal would create substantial revenue challenges for financial institutions. Under current conditions, banks earn approximately $1,300 per customer annually in interest from the average revolving balance at 22% APR. The proposed 10% cap would reduce this figure to around $600 per customer, representing a loss of more than half their interest income per customer.

For major card issuers with 10 million customers carrying balances, annual interest income could decline by as much as $7 billion. This significant financial impact explains the strong opposition the proposal has encountered from banks and financial institutions.

Indian Market Context

The proposal has raised questions about similar reforms in other markets, particularly India. Indian credit card interest rates operate at significantly higher levels, typically ranging between 36% and 48% annually depending on the lender. Implementing a 10% interest rate cap in India would represent an unprecedented policy shift requiring legislative backing, extensive consultation with banks, and would likely face substantial resistance from the financial sector. The Reserve Bank of India currently influences lending rates indirectly rather than through direct caps.

Implementation Challenges

Trump's proposal signals growing political attention to household debt and consumer costs in the US financial system. However, the path to implementation remains uncertain, as any nationwide interest rate cap requires Congressional approval. The strong opposition from the banking sector, combined with the significant revenue implications, suggests substantial legislative and regulatory hurdles ahead.

The proposal represents a notable shift in consumer finance policy discussion, though whether it translates into actual legislation remains to be determined. The initiative highlights the ongoing tension between consumer relief measures and banking industry profitability in credit card markets.