By Manya Saini
Jan 12 (Reuters) - U.S. President Donald Trump's proposal to cap credit card interest rates at 10% has grabbed headlines but would require legislation and has slim odds of passing, Wall Street analysts said.
Credit cards are a cornerstone of U.S. consumer finance, giving households flexible access to credit but often at hefty rates, which can make balances costly to carry. For banks and card issuers, those high rates and associated fees are a major source of profit.
For years, Washington
has been split over whether interest rate caps would help consumers or curb access to credit.
Trump called for a one-year cap on credit card interest rates at 10% starting on January 20 on Friday, without providing details on how his plan will come to fruition or how he planned to make companies comply.
"While this represents an escalation of headline risks for credit card issuers, we believe that a card rate cap can only be done by Congress, not executive order," analysts at TD Cowen wrote in a note.
"We ascribe a low probability of a cap getting passed legislatively at the federal level, similar to prior attempts to introduce a broad national rate cap," the brokerage added.
Affordability has emerged as a central political issue ahead of the U.S. mid-term election, with voters increasingly focused on the cost of everyday necessities.
The average credit card interest rate currently stands at about 19.65% in the U.S., according to consumer financial services company Bankrate.
Millions of Americans carry credit card balances month to month, with lower-income households more likely to rely on cards for everyday spending and to face higher interest rates.
High interest rates mean credit card balances can grow quickly when consumers do not pay them off each month.
"In our view, the President has limited ability to implement this unilaterally," analysts at Barclays said, adding that similar measures have previously failed to gain traction in the Senate and the House of Representatives.
Analysts at Jefferies echoed that view, saying such action has historically lacked congressional support and would require an executive order.
(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)
