Former President Donald Trump has proposed capping credit card interest rates at 10% for one year, beginning January 20, 2026. The announcement, made via his Truth Social platform, aims to address what he describes as predatory lending practices by credit card companies. While the proposal’s enforcement mechanism remains unclear, its potential impact on consumers and the broader financial landscape is significant.
How Credit Card Companies Make Money
Credit card issuers generate revenue primarily through three avenues: interchange fees (charged to merchants), interest charges (applied to outstanding balances), and annual fees. High interest rates—currently averaging over 20%—are a major profit driver, particularly for those with lower credit scores.
The Proposed Cap and Its Implications
Trump’s proposal would slash interest rates by more than half, which could have a double-edged effect:
- For borrowers: Individuals carrying credit card debt would pay significantly less in interest charges. However, this benefit may come at a cost.
- For lenders: Card issuers might tighten lending standards, denying credit to higher-risk applicants, or even closing existing accounts. The profitability of lending to subprime borrowers diminishes sharply at a 10% rate, making it less attractive for issuers.
Rewards Programs at Risk
The current credit card rewards ecosystem—including cash back, travel points, and bonus offers—is largely subsidized by high interest rates. Revenue generated from interest charges helps fund these incentives. A long-term cap on rates would force issuers to re-evaluate rewards programs, potentially reducing benefits or eliminating them altogether.
“The reality is that the revenue that subsidizes a lot of rewards is the interest charges, since that’s the highest margin revenue stream from many card issuers.”
This could also affect airlines and other partners that rely on credit card revenue to fund loyalty programs and operations. The proposed one-year timeframe adds uncertainty, as it creates a temporary disruption without addressing the underlying economic factors.
Why This Matters
Credit card interest rates are a contentious issue. While capping rates could offer relief to borrowers, it also risks limiting access to credit for those with poor credit histories. The financial impact on rewards programs and issuer profitability is undeniable. The proposal raises questions about the long-term sustainability of the current credit card model, where high-interest revenue subsidizes benefits for others.
Ultimately, Trump’s call for a rate cap highlights a fundamental tension in the credit card industry: balancing affordability for consumers with profitability for issuers. Whether this becomes policy through executive action or market pressure remains to be seen, but the debate is likely to continue as long as high-interest debt persists.
