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Big US banks hoped Donald Trump would help them make ever bigger profit. Now he is going after the best part of their business. On Friday, the US president vowed to cap credit card interest rates at 10 per cent, less than half where they sit now. That would be a great deal for borrowers — and will fill lenders with dread.
Furnishing Americans with plastic is one of the most lucrative parts of banking. Synchrony, which issues cards for Amazon among others boasted a 25 per cent return on equity in its latest quarter, even factoring in allowances for credit losses equivalent to around 10 per cent of its loan balances. Synchrony’s shares fell over 8 per cent on Monday.
Banks argue these generous margins are essential for offering revolving, unsecured credit. Without these elevated rates, lenders could withdraw from the market, “devastating” working families. This, of course, is the standard industry response to unfriendly regulation, deployed to water down so-called Basel III rules in 2024.
While banks are right to chase profit and eschew excessive risk, credit cards are unlikely to lose their charm. Researchers from the New York Federal Reserve last year found card issuers, despite high marketing spend and reward bonuses, achieved an unlevered return on assets approaching 7 per cent, more than 4 times banks’ overall profitability, aided by membership and interchange fees. Private credit firms snapped up 14 times more consumer debt last year than in 2024, suggesting unsecured lending to American households remains attractive.
Trump’s missive may be more signal than actual policy. Lobbyists will go into overdrive to soften the blow. And abruptly pulling credit available would indeed be calamitous for many low-income households. At the least, though, banks are now under pressure to defend their most expensive and profitable products.
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