Investment - Articles - Trump calls for credit card cap

Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Banking stocks are under pressure this morning, with the sector trading lower across the board as investors weigh the fallout from Donald Trump’s call for a one-year cap on credit-card interest rates.

A 10% ceiling on credit-card rates, roughly half today’s average interest rate, would upend the basic economics of the industry, forcing lenders to rethink how they manage risk and who they’re willing to lend to. Most banks would respond by cutting credit limits, closing riskier accounts, and scaling back rewards programmes, because they simply couldn’t cover losses at that price point. Card-focused names in the US would be hit the hardest, but big universal banks with card divisions would also feel the squeeze.

Barclays is taking the biggest hit among the UK majors this morning, sliding more than 3% as investors react to the prospect of tighter credit-card economics. The bank’s US cards operation, ranked ninth in the market and contributing around 11% of group profits, leaves it more exposed to any push for rate caps than most of its UK peers. Barclays is less exposed than some, given it targets higher-quality borrowers, which naturally have lower rates. However, this hasn’t shielded it from becoming the UK's focal point for traders looking to express caution across the wider banking sector today.

If lenders pull back, alternative options like Buy Now, Pay Later would likely pick up the slack, giving a boost to players such as Affirm and Klarna, which are already seeing strong demand. And while no one yet knows how such a proposal could be implemented without Congress, the mere possibility is enough to send a few shivers through markets this morning, because banks can’t afford to ignore a risk that strikes at the heart of their biggest consumer products.”