Two weeks in the past, President Donald Trump shocked the banking business by asserting his help for capping bank card rates of interest at 10 % for one 12 months. When markets opened the following buying and selling day, the shares of the most important bank card issuers (Capital One, Citigroup, and JPMorgan Chase) and bank card networks (American Categorical, Mastercard, and Visa) fell by as a lot as 10 %. The New York Occasions’ Andrew Ross Sorkin described the banks as getting ready for “battle.” JPMorgan’s CFO, Jeremy Barnum, stated “all the things is on the desk” to battle the administration’s “weakly supported” try and “seriously change” their enterprise.
The response was sturdy for a purpose. Bank card lending is profitable. Roughly 80 % of American adults personal a bank card, collectively owing over $1.2 trillion in debt. Whereas some at all times pay their balances, many carry debt at an common rate of interest of 20 % or greater. In 2024, banks earned $160.2 billion in credit-card curiosity. These charges might cowl a month of groceries for each U.S. family.
Bankers argue {that a} cap, in JPMorgan CEO Jamie Dimon’s phrases, will “be an financial catastrophe.” Citigroup CEO Jane Fraser warned that “a overwhelming majority of shoppers and companies would lose entry to bank cards.” Financial institution of America CEO Brian Moynihan echoed these considerations. Even Home Speaker Mike Johnson—not one to problem the president—cautioned that Trump “most likely had not thought via … the adverse secondary impact” of lowered lending.
However the bank card market doesn’t look like well-functioning or aggressive. Bank card revenue margins have virtually doubled over the previous twenty years. On the World Financial Discussion board in Davos, Switzerland, Trump referred to as on Congress to move laws capping charges. It ought to take this cost significantly.
Why are Curiosity Charges so Excessive?
First, you aren’t imagining that bank card rates of interest have soared. Based on the Federal Reserve, the typical rate of interest was 14 % from 1995 to 2020. As we speak, it’s 22 %.
One of many main causes is the Federal Reserve. In response to inflation, the Fed started elevating charges in 2022. Financial institution funding prices have elevated accordingly. Between 2009 and 2022, the financial institution prime price (a proxy for financial institution funding prices) averaged 3.25 %. By 2025, it was 7-7.5 %. If the Fed had not hiked charges, banks presumably might have lowered their charges by 4 % (from 22 % to 18 %).
However this solely explains a part of the rise shoppers are seeing. The present financial institution prime price is just like pre-2008 ranges, however bank card rates of interest are far greater now than they had been then. The unfold between bank card charges and the financial institution prime price has additionally widened throughout all sorts of debtors. From 1995 to 2008, the typical unfold was 7.5 %. From 2009 to 2017, it was 10.2 %. However within the final eight years, it has steadily risen. In This fall 2025, the typical unfold reached 14-15 %. This 4-5 proportion level enhance exceeds the affect of the Fed’s price hikes. So greater bank card charges are greater than only a cost-of-capital story.
One clarification is greater credit score danger and potential losses. Since bank cards are unsecured, these loans are riskier than loans for companies or actual property.
However this clarification isn’t persuasive. The American Bankers Affiliation (ABA) notes that the variety of subprime accounts has grown, however the proportion of subprime accounts has remained roughly fixed. For instance, at Capital One in 2013-14, 31-32 % of its bank card portfolio had FICO scores under 660, roughly the edge for subprime debtors. In 2023-24, 31-32 % of its bank card portfolio nonetheless had FICO scores under 660.
Maybe debtors have change into riskier and are defaulting extra usually, no matter their FICO scores. Certainly, delinquency charges have risen in recent times. But when one extends the timeline, at this time’s delinquency charges aren’t dissimilar from pre-2008 averages when bank card charges had been nearer to 15-16 %. Whereas bank card debt write-offs have additionally elevated, it stays under 5 %, just like pre-2008 averages. Revenue margins have additionally grown by a comparable magnitude throughout danger tiers, together with prime debtors, although they proceed to have low delinquency charges.
An alternate clarification for greater charges is proscribed competitors, because the ten largest card issuers signify 83 % of the market. The return on belongings for giant credit score card-issuing banks is virtually thrice that of banks with out bank card packages. A latest Federal Reserve Financial institution of New York report discovered that return for bank cards was 5 to 6 instances greater.
The Financial institution Coverage Institute claims the market is aggressive as a result of market focus isn’t extreme. But, because the Shopper Monetary Safety Bureau (CFPB) noticed, smaller banks and credit score unions have lengthy provided a lot decrease bank card charges. If bank card customers shopped based mostly on charges, one would count on these lower-cost lenders to achieve market share over time.
The issue is that buyers can not simply store for playing cards based mostly on charges. Banks set particular person charges based mostly on a borrower’s traits. Most debtors don’t know their precise price till they apply for a card, and it’s inconvenient and unusual to use for a number of playing cards without delay. Because the CFPB additionally notes, “bank card pricing usually consists of a mixture of rates of interest, late charges, steadiness switch charges, annual charges, money advance charges, and overseas transaction charges,” making it even more durable to find out the true price. Whereas some third-party web sites—akin to Bankrate and NerdWallet—checklist interest-rate ranges, they’re so broad that it’s tough to find out what a client will truly pay. Nor are these web sites impartial; some obtain kickbacks from banks.
Moreover, shoppers usually choose playing cards based mostly on different phrases, akin to annual charges and rewards like money again and airline miles, relatively than charges. The Federal Reserve Financial institution of New York report notes that banks have elevated their advertising and marketing budgets to promote these options. (See the advert marketing campaign for the Chase Sapphire Reserve card that includes Hailey Bieber.) Will increase in advertising and marketing budgets had been correlated with rising margins. So aggressive pressures, to the extent they exist amongst banks, could also be manifesting in greater advertising and marketing and reward prices to win over clients, which banks can recoup via greater margins.
Whereas many have expressed affordable skepticism about this clarification, rising margins counsel that the disciplinary forces of competitors haven’t been efficient right here.
What to Do About It?
If the issue is the market, maybe we might foster extra competitors. For example, underneath President Biden’s administration, the CFPB developed a comparability instrument that listed common charges by FICO tier, location, and anticipated spending. However in 2025, the Trump administration killed it as a part of their broader destruction of the CFPB. Congress might additionally amend the CARD Act to require clearer price disclosures, though this may cut back banks’ skills to tailor costs to particular person clients. Congress might additional promote smaller banks and credit score unions to allow them to broaden their bank card lending.
Nonetheless, there isn’t a assure that such options will work. Banks already deviate from free-market ideas in vital methods, together with via entry to deposits at under market charges and backstops from the Fed and FDIC. As a substitute, Trump has proposed capping rates of interest. As my colleague, Brian Shearer on the Vanderbilt Coverage Accelerator, has proven, bank card price caps might generate tens of billions of {dollars} in financial savings for debtors.
The pure follow-up query, after all, is what the second-order results could be. For example, if banks are overly conservative about credit score losses—whether or not resulting from heightened danger aversion following the COVID-19 pandemic or to adjustments in accounting conventions—capping charges might cause them to reevaluate their conservatism. If the market is simply too uncompetitive, capping charges might pressure banks to chop prices and/or decrease revenue margins with out lowering their lending. But, if the cap is about too low, lending to some debtors with the bottom FICO scores will change into unprofitable.
Bankers argue that the latter consequence is almost certainly. JPMorgan’s Dimon has warned {that a} price cap would “take away credit score from 80 % of Individuals.” However banks earn cash from debtors via extra than simply curiosity—for instance, via account, interchange, and late charges. And so they incur reward and advertising and marketing prices, even at decrease FICO rating tiers, that may attain 4 to five % of mortgage balances per 12 months. In idea, banks might alter these variables earlier than deciding whether or not to lend, as a result of extra revenue streams make lending worthwhile throughout FICO-score tiers. As Shearer’s evaluation reveals, underneath a ten % cap, cuts to rewards and advertising and marketing prices might offset lowered web curiosity revenue for many FICO-score tiers. And underneath a 15 % cap, roughly equal to the typical historic bank card price between 1995 and 2022, banks needn’t make this trade-off for many clients.
Nonetheless, some banks might decline to lend to some debtors—particularly these with the bottom credit score scores. The query is what number of will probably be excluded, given how low rates of interest are set. If entry to credit score is deemed socially important, we might offset this unprofitability via authorities subsidies or public-utility-style regulation that cross-subsidizes these prices. Such regulation would require banks to reallocate income from extra profitable actions to cowl the shortfall. Society takes this method in different markets the place profit-based corporations have little incentive to maximise service. Alternatively, the answer might lie exterior the banking system, akin to via stronger social security web packages.
The effectiveness of a cap—and the trade-offs—depend upon its degree and whether or not the above results dominate. That is in the end an empirical query, but additionally a judgment name. Recall, comparable accusations had been as soon as leveled towards minimal wage proposals, however empirical research confirmed that most of the feared penalties by no means materialized.
The necessary takeaway isn’t that some magical silver bullet exists and that policymakers have ignored it. As a substitute, we shouldn’t be content material with the established order; we should always intention greater. Excessive bank card burdens pressure hundreds of thousands of American households. There’s a purpose why four-in-five Individuals—together with a majority of Democrats, Independents, and Republicans—help a credit-card-interest-rate cap: The present laissez-faire method has not labored. With the 2026 midterms and 2028 presidential election looming, Congress ought to deal with this problem significantly and thoughtfully, but additionally with the urgency it deserves.
