Klarna Group PLC (KLAR) shares dropped Monday after President Donald Trump spent his weekend thinking about credit card interest rates. His proposed solution? Cap them at 10% for a year, because he believes Americans are being "ripped off" by the 20% to 30% rates that card companies typically charge.

The Proposal That Moved Markets

Trump floated the idea on Truth Social, suggesting the cap would kick in on Jan. 20. What he didn't mention was how this would actually happen—no word on whether an executive order is coming or if this was just weekend posting. Either way, the market took notice.

The timing is interesting given where American household debt stands. According to the Federal Reserve Bank of New York's Center for Microeconomic Data, total household debt hit $18.59 trillion in the third quarter last year. Credit card balances alone jumped $24 billion from the previous quarter.

The Klarna Angle

Here's where it gets complicated for Klarna. The Swedish company built its business on letting people buy stuff through installment plans, sometimes at 0% interest plus a service charge. That sounds like it would benefit from a world where credit cards are capped at 10%, right?

The logic works like this: if traditional card issuers face a hard 10% APR ceiling, they'll probably tighten their lending standards, especially for subprime and near-prime borrowers. Those shoppers would need somewhere else to go at checkout, and buy now, pay later companies would be waiting with open arms.

But investors aren't celebrating. After jumping in early trading to around $33.10, Klarna shares reversed course and traded lower. The worry seems to be that if regulators are going after credit card rates, buy now, pay later companies might be next in line for scrutiny. The stock closed down 2.83% at $30.61.

The Bigger Picture

Klarna went public last September and has already lost a quarter of its value. The business model is solid from a demand perspective—Adobe Analytics projected total buy now, pay later spending would reach $20.2 billion during the recent holiday season, up 11% year over year. People clearly like the option.

But policy uncertainty is a different beast entirely. Nobody knows if Trump's rate cap will actually happen, how it would be implemented, or whether similar restrictions could eventually apply to installment-based payment providers. That's the kind of ambiguity that makes traders nervous, even when the underlying business trends look healthy.