Trump's 10% Credit Card Cap Plan Hit AmEx Stock Hard

"On paper, putting a 10% cap on credit card interest sounds like an incredibly good idea that could give some of the more indebted consumers a break, at least for some period of time. Undoubtedly, it's tough to climb out of a debt spiral, especially if you're deep in credit card debt, which tends to boast some of the highest interest rates out there."

"Though 10% seems to be a fairer level that might be a huge win for certain consumers, the potential net effect might not be all too positive, especially when one considers how the banks could react in response to such a potentially disruptive and sudden move. The disruptive impact might actually hurt the economy, say industry pundits. JPMorgan ( NYSE:JPM) noted that such a credit card cap would wind up working against consumers as well as the economy."

A proposed 10% cap on credit card interest could provide relief to highly indebted consumers but may provoke significant responses from banks and issuers. Banks warn they could tighten underwriting, reduce credit access, or alter product offerings to offset lower yields. Reduced lending to higher-risk borrowers could leave some Americans with less available credit despite lower rates. Financial markets reacted with declines in bank and card-company shares as investors weighed risk. Industry leaders contend that unintended consequences like constrained credit supply and potential economic harm could outweigh direct borrower benefits.

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