• Key Insight: After calling for a 10% rate cap on credit cards last month, President Donald Trump has grown quiet on the issue. But experts say regulators don't have a very detailed understanding of how the market works or how pricing decisions are made.  
• What's at Stake: Billions of dollars worth of travel rewards would be at stake if Congress passed legislation to cap annual percentage rates. 
• Forward Look: In order to better understand credit card pricing, regulators would need to conduct a "horizontal review" of the market.  

WASHINGTON — President Donald Trump's headline-grabbing ultimatum for a 10% interest rate cap on credit cards failed to materialize by his self-imposed deadline of January 20th. 

Last week, during a stump speech in Iowa, Trump didn't mention credit cards or rate caps. Meanwhile, legislative efforts to cap rates have stalled amid fallout from the deaths of protesters at the hands of federal agents in Minneapolis and the nomination of Kevin Warsh as Federal Reserve chair. 

But the underlying issue of high annual percentage rates, or APRs, and criticism of "opaque pricing" on credit cards persists, suggesting that there is significant public and academic interest in the issue even if Congress fails to act. And there are still regulatory levers that the Trump administration — or a future Democratic administration — to make credit card pricing more competitive, particularly through guidance on unfair and deceptive interest rate practices. 

Steven Jones, a retired, 39-year veteran of the Office of the Comptroller of the Currency, says it's "not unreasonable," to suggest that credit card issuers "may have room to maneuver on annual percentage rates."  

"The fact that many observers consider current pricing to be too high means it's a good time to deeply evaluate the many factors that support the current terms of the products and business models," said Jones, who had served as director of supervision risk management and retail credit risk policy at the OCC.

Enter the CARD Act

Banks have been earning stronger profits since the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009, Jones said. Though the CARD Act was opposed by banks because it set limits on late fees and retroactive interest rate hikes, the law also had the effect of shifting issuers' profit models to higher APRs and interest rate margins. 

Jones said the OCC should conduct a "horizontal review," summarizing the strategies supporting credit card pricing and fees, to "set a good baseline for an objective discussion of industry practices."  

Consumers generally can't shop for credit cards based on annual percentage rates because they first have to submit a credit card application before they know what rate will be offered. A review would establish the rationales behind credit card pricing, which have become less transparent due to competition for airline and travel rewards. The OCC did not respond to an inquiry seeking comment.

"Issuers are competing on who can offer the best rewards, so there is a dimension of competition happening — but there is effectively no competition on interest rates," said Elena Botella, a former senior manager in Capital One's credit card division. "It would be as if all of the car companies were just competing on whose cars are the coolest colors, not price or safety."

Botella, the author of "Delinquent: Inside America's Debt Machine," said price is "not an element of competition in the credit card market for a wide range of reasons, but I think that's one of the issues regulators should try to solve."

The Federal Reserve and researchers have detailed information on credit card profitability and interest rates across various types of credit cards to make an informed analysis of a rate cap, Botella said. 

Trump's appetite for a Congressional fight over interest rates may be waning in the face of pushback from bankers, or just other news. JPMorgan Chase's CEO Jamie Dimon called a rate cap an "economic disaster," while Visa's CEO Ryan McInerney called a rate cap "very harmful," and "simply not needed." Bank trade groups have gone to great lengths to break down what factors go into the APR including the cost of funds, operating costs, profits and losses. 

Itamar Drechsler, a finance professor at University of Pennsylvania's Wharton School, co-authored a report last year that sought to explain why credit card rates are so high compared to other loans or bonds. He found that banks pass the operating and marketing costs for airline and travel rewards onto consumers through higher rates.

Jones said the excess spread on securitized credit cards — that is, yield minus net expenses and losses — consistently reaches between 17-19% today, as opposed to less than 10% prior to the passage of the CARD Act. Such excess spread levels reflect greater resiliency, or the ability of issuers to withstand adverse events.

"Credit card issuers have a more resilient book of business because of the CARD Act and changes made to accommodate its restrictions," said Jones. But he added that regulators would be unlikely to delve down into pricing strategies unless "there is significant outside pressure."

'What have we done?'

Drechsler's research, published as a Federal Reserve staff report, found that banks with higher operating costs charge "substantially" higher interest rates. Losses on unpaid balances alone do not explain why spreads are nearly 20% above the federal funds rate, Drechsler said. Absent charge-offs, operating costs to acquire and retain customers account for about half of the remaining rate spread.

"In the end, what have we done?" Drechsler said. "We spent a lot of money on advertising. We've raised people's credit card rates. They don't really enjoy the advertisements. They respond to them, but they're not getting anything out of them, so their life's not better off. They're just paying higher rates."

Credit card Issuers and comparison sites reinforce the focus on airline and travel rewards, Botella said. For low-income consumers, the amount paid on interest is much higher than what they receive on rewards, a trend that has increased over the past 15 years. 

"People can't easily calculate the value of rewards versus the amount they are paying in interest," Botella said. 

APRs are near record highs and have almost doubled in the past ten years, from an average of 12% to 21%. A Consumer Financial Protection Bureau report last month found that average APRs hit 25.2% for general purpose credit cards and 31.3% for private label credit cards in 2024, the highest level since 2015. Meanwhile, credit card debt hit a record $1.23 trillion last year. 

Another major piece of the credit card rate puzzle is the risk premiums priced into rates. Those premiums, as a general rule, are inversely related to a borrower's FICO score: The lower the score, the higher the premiums, and vice versa. Banks account for potential defaults by pricing the risk into credit card rates. Similar to a risky bond, a higher risk premium means a higher yield, which translates into what looks like stronger profitability on banks' balance sheets.

A 2024 CFPB report found that the top ten largest credit card issuers now control 82% of the market; economists have estimated that such an oligopoly has allowed large banks to charge rates between 3 to 8 percentage points higher than a more fully competitive market. 

Drechsler said his research showed that, for most FICO scores, a 10% cap — implying a 6.35% spread above the 3.65% federal funds rate — is too low for banks to turn a profit if credit card businesses continued to operate under the current model.

Gaming out a post-cap future

Not all researchers think a 10% cap would be so fatal to the industry. 

Brian Shearer, director of competition and regulatory policy at the Vanderbilt Policy Accelerator and former director of policy and strategy at the CFPB, said his recent analysis showed that if rates were capped at 10%, banks could still be profitable. But to be profitable, banks would have to cut rewards benefits, advertising costs and marginally cull higher-credit risk borrowers from their rolls. Banks would have to cut roughly $27 billion of reward benefits to produce $100 billion in annual savings from interest revenue, per Shearer's research.

If Congress did intervene with a rate cap, banks would respond by reducing rewards and try to institute annual fees to recover lost profitability, said Jones. 

Though the Department of Transportation launched a probe in 2024 into the rewards programs at the nation's four biggest airlines, it is unclear if the Trump administration is seeking to pull back the curtain on airline business practices and partnerships with credit card issuers. 

One unofficial rule within the credit card industry is that rewards costs are paid for by interchange fees; interchange fees are paid by merchants on credit and debit card purchases. Banks could instead use interchange fees to pay for defaults or operating costs if a rate cap passed, Shearer said.

He added, though, that he doesn't think consumers would be entirely cut off from cards based on their credit scores.

"If a bank could make money off of a customer, I think they would be inclined to do so, instead of just cutting them off entirely," Shearer said.