Mastercard Inc. (MA) took a hit Tuesday, dropping alongside the broader credit card sector after some pointed warnings from Wall Street about what could happen if President Donald Trump follows through on his proposed interest rate cap.
The Warning Shot From JPMorgan
Trump's idea is straightforward: cap credit card interest rates at 10% for one year starting January 20. Sounds consumer-friendly on the surface, right? Not so fast, says JPMorgan Chase CFO Jeremy Barnum.
"If it were to happen, it would be very bad for consumers, very bad for the economy," Barnum told reporters Tuesday, according to Reuters. He didn't mince words, arguing that JPMorgan would be forced to significantly scale back its credit card business. The policy, he said, would have "the exact opposite consequence" of what the administration intends.
Why Banks Are Sounding the Alarm
Here's the economics lesson: credit cards are unsecured debt, meaning there's no collateral backing them up. Banks charge higher interest rates to offset that risk. If you suddenly cap those rates at 10%, lenders start losing money on riskier borrowers and pull back aggressively.
Financial groups, apparently caught flat-footed by the proposal, quickly mounted a defense. A major banking trade group warned that a 10% cap would sharply reduce credit availability and prove "devastating" for families and small business owners who depend on credit cards for everyday financing. Their data suggests millions could lose access to credit entirely if banks retreat.