Matt Frankel

The unintended consequence would be that credit card companies would essentially be forced to drop consumers that represent a relatively high credit risk, and not just the bottom customers.

I'm talking about anyone without stellar credit.

Think of it this way.

If a bank is forced to cap credit card interest rates at 10%,

and their cost of deposits is 3% for savings accounts, that's a 7% gross margin.

Consider that many credit card companies, like Capital One, for example, have a 6% to 7% charge-off rate.

That would eliminate that profit entirely.

That's before you even factor in the cost of providing credit card rewards that everyone signs up for these things for, and the general cost of running the business, having branches, having offices, things like that.

Credit cards would be completely unprofitable.

The only way to make that work would be to get rid of all the top-tier credit customers, who ironically are the least in need of access to credit.

This would likely have very broad economic consequences, in addition to hurting bank profits, such as sharply lower consumer spending, as people would be more hesitant to spend money.

Just to be clear, I don't think a 10% rate cap has any chance of happening.

But we could see some sort of restriction on the credit card industry.

It's kind of a bipartisan thing now.

The President messaged about it.

Elizabeth Warren has been crusading for this for years.

The two of them actually had their first-ever phone conversation about this.

Some sort of restriction could be placed on the credit card industry.

There are the obvious credit card-heavy banks, like you have your Capital One, you have your American Express.

But all the big four, the Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, all have substantial credit card exposure.