What a credit card interest rate cap would mean for issuers like Capital One and consumers

CNBC Finance

6 min read

Credit card companies are coming under bipartisan attack in Washington as persistent inflation leaves many Americans struggling to make ends meet. The economic uncertainty has even put President Donald Trump and Sen. Bernie Sanders on the same side in pursuit of ways to lower the annual percentage rates paid by consumers. Club name Capital One and the other major credit card issuers are being caught in the crossfire of the political rhetoric and are in a holding pattern to see what action â if any â might be taken, how it could reshape the industry and how it might impact their willingness to lend across the income spectrum. The renewed calls to curtail APRs came after Trump demanded a year-long, 10% cap in late January. Last week, Sanders â the longtime Vermont independent and staunch critic of the Republican president â called for a permanent cap of 15% on credit card rates. In a Fox News op-ed , Sanders blasted Trump for giving lip service to the affordability problems. But the senator did write, "I have to admit, there is one issue that Trump has identified that does make sense. He is right when he says that big banks are ripping off the American people with outrageously high credit card interest rates." Republican Sen. Josh Hawley from Missouri said last month that Congress should pass the bill that he introduced in February 2025 with Sanders that would limit credit card rates at 10% for five years. Democratic Sen. Elizabeth Warren from Massachusetts has also been vocal on the issue of capping credit card rates, and pressing the Trump administration to get behind Congressional efforts to do so. Wall Street analysts and executives fear that squeezing credit card issuers like Capital One will reduce their incentive to lend, ultimately cutting off credit access for lower-income households that need it most. JPMorgan CEO Jamie Dimon has said that Trump's suggested level of a 10% cap would be an "economic disaster" that would result in a "drastic" cut to credit access for 80% of Americans. "The people crying the most won't be the credit card companies, it will be the restaurants, the retailers, the travel companies, the schools, the municipalities because people will miss their water payments," Dimon said at the World Economic Forum in Davos last month. When reached for comment on the matter, a Capital One spokesperson pointed to CEO Richard Fairbank's remarks on Trump's suggested cap during the company's earnings call in January. Fairbank said there would be "multiple shocks throughout the economy" and even "a potential recession" if implemented. "This would happen because we and the industry would be compelled to immediately slash credit lines, restrict accounts, and limit new originations to a very small subset of consumers." He added that "consumers are the backbone of the American economy," with more than two-thirds of U.S. gross domestic product driven by consumer spending and "$6 trillion of that spending is on credit cards." If credit card giants like Capital One or JPMorgan cannot charge premiums to offset the risk of default, they will likely tighten lending standards for subprime borrowers. "A permanent cap is a non-starter because it would effectively eliminate most revolving lines of unsecured credit," Mark DeVries, an analyst at Deutsche Bank, told CNBC. "Your returns on capital would be so low that you would kind of exit the business." While a year-long cap would be feasible but "uneconomic" for Capital One, DeVries said a long-term cap would "wipe out a very meaningful part" of the company's revenue. Credit cards accounted for roughly 74% of overall Capital One revenue last quarter, the majority of which come from interest on customer balances. Keefe, Bruyette & Woods estimated that earnings per share for credit card issuers like Capital One could be reduced by some 25% or wiped out completely â even resulting in losses. Analysts at the firm pointed to Capital One as among the most vulnerable in the industry, given its reliance on interest-based income and huge exposure to credit card loans. Complicating matters further, the suggested cap follows Capital One's $35 billion acquisition of Discover last June â a deal crucial to the Club's investment thesis. Discover brought with it billions worth of credit card balances, which would be equally as impacted by an interest rate limit. Discover also includes a payment network that Capital One can leverage to reduce its reliance on Mastercard and Visa, allowing it to be more like American Express â a company that acts as both a card issuer and a payment system. A hobbled Capital One without a payment network is less formidable. COF 5Y mountain Capital One 5 years To be sure, it's still unclear if Trump's credit card rate cap will ever be implemented. While Trump originally issued a Jan. 20 deadline, there has been little word from the White House on the matter since. Plus, an interest rate cap on credit cards will require congressional approval. The market seems to be doubting the odds as well. Trump's remarks have hurt Capital One stock, which has dropped 14% year to date. Shares reversed higher Friday after lingering concerns earlier in the session about the threat artificial intelligence poses to the financial sector. We may consider picking up some shares on weakness as a result in the coming sessions, Jeff Marks, the Investing Club's director of portfolio analysis, said Friday. The early 2026 weakness though over Trump is still a fairly small loss, given that interest rates are the main way that Capital One makes money. Additionally, shares have had three amazing years in a row, jumping 36% in both 2025 and 2024, and 41% in 2023. Bottom line For now, we're going to keep monitoring any updates and not make any sudden moves with respect to Capital One. In a status quo scenario, we still like the set-up because the Discover deal brings billions worth of expenses and network operational efficiencies that will improve the company's earnings power. The acquisition should lead to aggressive share repurchases. If that weren't enough, management also announced last month a plan to buy San Francisco-based fintech company Brex for $5.15 billion. The purchase, which is expected to close in the middle of 2026, aims to make Capital One more competitive in the lucrative corporate card market. (Jim Cramer's Charitable Trust is long COF. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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What a credit card interest rate cap would mean for issuers like Capital One and consumers

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