JPMorgan says Trump’s credit card cap would hurt consumers and the economy

By Saeed Azhar, Manya Saini and Arasu Kannagi Basil

Jan 13 (Reuters) – Top JPMorgan executives including CEO Jamie Dimon warned President Donald Trump’s proposed 10% cap on credit card interest rates would severely hurt consumers, adding their voices to growing industry pushback.

Trump, who is under pressure to address voters’ cost of living concerns ahead of this year’s congressional elections, last week on his social media platform Truth Social proposed the cap for one year starting Jan. 20, in a surprise move that blindsided the industry and sent financial banking stocks tumbling.

The industry has been scrambling to rebut the proposal, pushing new data that argues a cap would result in millions of American households losing access to credit, although some industry experts dispute their analysis, arguing credit cards are highly profitable and banks have room to lower rates.

“It would be very bad for consumers, very bad for the economy,” JPMorgan Chief Financial Officer Jeremy Barnum told reporters on Tuesday’s earnings call, adding that the bank would have to change the business significantly and cut back the amount of credit it offers.

“Our belief is that actually this will have the exact opposite consequence to what the administration wants,” said Barnum.

According to another senior industry executive, Trump’s post also caught some government officials by surprise, and the administration had not as of Monday afternoon engaged with lenders to discuss the proposal.

Executives aim to hold meetings in coming days with administration officials and lawmakers to explain the adverse consequences of a cap, this person said. They added that several lawmakers in both parties did not support the proposal, and that he did not expect the Senate to advance a bill on the issue.

“There’s just so little … information,” Barnum added on a post-earnings conference call. “This is happening very quickly in a sort of unconventional way, starting with a social media post.”

“If you wind up with weakly-supported directives to radically change our business that aren’t justified, you have to assume everything is on the table,” Barnum said in a separate call with reporters when asked if the company would pursue legal action against any rate caps.

In another jab at the financial industry, Trump overnight also voiced support on Truth Social for lowering card swipe fees.

While efforts to crack down on credit card companies have failed to gain traction in the past, analysts said the growing headwinds for the credit card ecosystem were hurting investor sentiment on financial stocks, and would continue to weigh on credit card issuers.

The KBW Bank Index which tracks large-cap lenders was last down 0.9% in morning trading. JPMorgan shares fell 2.7%.

The White House did not immediately respond to a Reuters request for comment.

 U.S. House Speaker Mike Johnson said on Tuesday that Congress should explore the idea of a cap on credit card rates, but warned of “negative secondary effects.”

If implemented, a 10% interest rate cap would hit a major driver of industry profits. The business generates strong returns as banks charge high interest rates to compensate for the greater risk of default associated with card loans, which are unsecured.

The average interest rates on credit cards in November stood at 20.97%, according to the Federal Reserve’s consumer credit report released last week.

On Monday, the Electronic Payments Coalition, ​which represents financial institutions and card networks, said that nearly every credit card account associated with a credit score below 740 – 82% to 88% of open credit card accounts – would be closed or severely restricted under a 10% cap.

While subprime borrowers would be hardest hit, a cap would lead to higher annual fees for most borrowers and reductions in credit card rewards and more monthly account charges, lenders argued.

“You would have to adjust your model for the added risk by this and ongoing price controls,” JPMorgan CEO Jamie Dimon said in a call with analysts, adding that a lot of co-branded credit cards have subprime borrowers as customers. “It would be dramatic.”

Some analysts though, have disputed those assertions.

A study from Vanderbilt Policy Accelerator, a research center at Vanderbilt University, published in September, found that a 10% cap would save Americans $100 billion annually.

(Reporting by Manya Saini and Arasu Kannagi Basil in Bengaluru and Saeed Azhar in New York; Additional reporting by Michelle Price, Richard Cowan and Katharine Jackson; Editing by Lananh Nguyen, Sriraj Kalluvila and Shinjini Ganguli)