Fears of a looming credit crunch are rising on Wall Street following Donald Trump’s announcement of a 10% cap on credit card interest rates. The policy, revealed on Truth Social with a January 20 start date, has spooked investors and bankers alike. Trump’s goal is to lower costs for consumers, but experts warn that the unintended consequence could be a massive contraction in lending.
The banking industry was the first to sound the alarm. In a joint statement, major financial associations warned that a 10% cap would make it impossible to lend profitably to many consumers. They predicted that banks would respond by tightening lending standards, effectively cutting off millions of people from the credit market. This, they argued, would slow down the economy and hurt the most vulnerable households.
Investor Bill Ackman added his voice to the chorus of concern. He warned that the cap would lead to mass card cancellations, as banks move to limit their exposure to risk. Ackman argued that while the intention behind the policy is good, the economic mechanism is flawed. He predicted that subprime borrowers would be the first to lose their cards.
Senator Elizabeth Warren also expressed doubt, questioning the enforceability of the cap. She called the announcement a “joke” without Congressional approval, arguing that Trump is ignoring the legal realities of the financial system. Warren’s comments underscore the significant challenges that the administration will face in trying to implement the policy.
Despite the warnings, the announcement has been cheered by some. Senator Josh Hawley called it a “fantastic idea,” signaling that the political momentum for debt relief is strong. As the nation waits for January 20, the fear of a credit crunch hangs over the economy.
