As part of a broader effort to address the affordability crisis, President Trump has proposed capping credit card interest rates at 10% for one year and called for passage of the Credit Card Competition Act, which aims to tamp down on “swipe fees.”
We asked Seeking Alpha analysts Treading Softly, Dividend Collection Agency, and Grass Roots Trading which stocks they thought could be impacted if these measures take effect.
Treading Softly: A cap on credit card interest is less impactful to network operators such as Visa (V), Mastercard (MA), American Express (AXP), and Discover (which is owned by Capital One), and significantly more damaging to high-interest credit issuers like Synchrony (SYF), OneMain Financial (OMF), and Capital One (COF). The operators primarily profit from transaction fees, while issuers often rely on interest rates to offset risk.
As for the Credit Card Competition Act, the legislation aims to require two payment networks on a single card to reduce fees by increasing competition. There are only four major networks, and all are readily available to consumers. Discover is the only lower-cost option vs. Visa and Mastercard, while American Express is usually more costly. If this bill does pass, don’t expect a massive decline in swipe fees or cost savings for consumers.
Dividend Collection Agency: The president’s proposal of a 10% cap on interest rates could benefit Americans short-term but cause long-term damage.
While I don’t foresee this being approved, if it is, banks could eliminate cash back programs and introduce stricter card issuance requirements. This would have a negative impact long-term on Americans who rely heavily on credit cards.
Major banks like U.S. Bancorp (USB) would see a greater impact as merchant processing fee revenues could suffer. Credit card companies like Visa (V) and Mastercard (MA) could also see residual effects. Stricter enforcement of issued cards would not only mean fewer cards but also fewer transactions and lower volumes.
Grass Roots Trading: Trump’s proposed 10% limit on credit card interest rates, along with his renewed support for the Credit Card Competition Act, would likely hit credit card companies the hardest. This includes Capital One (COF), American Express (AXP), and Discover (DFS), along with big banks like JPMorgan (JPM) and Bank of America (BAC). These companies make money from charging interest and are the ones that take the risk if customers don’t pay back their debt.
By comparison, Visa (V) and Mastercard (MA) would be less affected by interest rate caps because they don’t issue credit cards or lend money. However, they could still be hurt if swipe fees are reduced or if new rules force more competition in how card payments are processed. Meanwhile, retailers like Walmart (WMT) and Amazon (AMZN) would probably clean up. Cheaper swipe fees and more routing options mean lower costs at the register.