Financial stocks fall as Trump’s credit card rate cap plan rattles investors

U.S. financial stocks and UK-listed ‌lenders ​fell on Monday as President Donald ‌Trump’s call for a one-year cap on credit card interest rates threatened a key ​revenue stream for the industry.

The move deepened concerns over the sector as investors grapple with interest-rate uncertainty and will likely dull the ‍potential benefit from a shift toward value ​stocks.

Trump on Friday called for a 10% cap on the interest rate on credit cards starting January 20 without providing ​details on ⁠how he planned to make the companies comply.

Shares of JPMorgan Chase and Bank of America, the top two U.S. lenders, dropped 2.5% and 1.6%, respectively, in early trading. Citigroup fell 3.7% while Wells Fargo declined 1.5%.

Wall Street analysts, however, expressed skepticism about the cap going into effect, noting that such a measure could only be enacted by Congress with ‌passage unlikely.

“It would take an Act of Congress for such rate caps to be in place, given the ​overwhelming legal ‌challenges an executive order would ‍likely face,” analysts ⁠at UBS Global wrote in a note.

British bank Barclays’ shares touched their lowest in nearly a month and were last down 2.2%.

Shares of U.S. consumer finance firms such as Synchrony Financial, Bread Financial and Capital One fell between 8% and 11%.

American Express tumbled 3.8%, while payment processors Visa and Mastercard slipped 1.8% each.

Trump’s announcement is seen as an attempt to rein in concerns over the cost-of-living, in what is a revival of his presidential campaign pledge.

“It is not surprising to see Trump re-visit the ​idea as ‘affordability’ has become a top concern among the U.S. voting base,” Seaport Research analyst Bill Ryan wrote.

However, analysts said the move could backfire, as lenders would be forced to slash limits or close accounts of borrowers with a lower credit score.

“This rate cap would not address the root of the problem and could push consumers towards more expensive debt. It could push more borrowing away from banks into other unsecured loans such as pawn shops and other non-bank consumer lenders,” J.P. Morgan analyst Vivek Juneja wrote in a note.

Credit cards are typically seen as one of the costliest forms of credit. Lenders often cite their unsecured nature with no collateral as a major reason for the high rates, since they ​face greater risk if borrowers default.

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.

Investors will closely scrutinize commentary from bank executives, as the industry kicks off the fourth-quarter earnings season this week.

Markets got yet another weekend surprise from ‌the Trump ​administration on Sunday, with news that the Justice Department is threatening to indict ‌Federal Reserve Chair Jerome Powell over comments made about a building renovation project – something the Fed Chair called a “pretext” for the White House’s aim of gaining more influence over interest ​rate policy.