Capital One (COF) shares plunged nearly 7% on Monday after President Donald Trump proposed capping credit card interest rates at 10% for one year. The announcement sent shockwaves through the financial services sector and raised questions about the stock’s bullish Wall Street consensus.
Trump caught bank executives off guard and triggered a broad selloff across the industry. Shares of major banks, including Citigroup (C), J.P. Morgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC), dropped between 1% and 3%, while card-focused companies like Visa (V), Mastercard (MA), and American Express (AXP) also declined. Capital One took the hardest hit, reflecting its heavy reliance on credit card operations, which dominate its loan portfolio.
The proposed interest rate cap is set to take effect next week. How it would be enforced (and its legality) is still unclear, but despite that, even just the concept still poses a significant threat to Capital One’s business model. According to data from Bankrate, the average credit card rate is around 19.7%, while rates for subprime borrowers and store-specific cards are even higher. A 10% ceiling would negatively impact the profit margins of several credit card companies, including Capital One.
Moreover, the policy would force banks to serve subprime borrowers or scale back reward programs and credit availability. This could trigger broader economic consequences and reduce consumer spending, resulting in a broader economic slowdown.
A closer look at the company’s recent performance and strategic positioning reveals a more complex story for investors weighing the stock’s prospects. The bank has been delivering strong financial results, with third-quarter earnings of $4.83 per share and revenue jumping 23% following the full integration of its Discover acquisition.
Credit performance has been particularly impressive, with charge-off rates dropping to 4.63%, down nearly a full percentage point from a year ago.
Delinquencies have stabilized and are tracking in line with normal seasonal patterns, suggesting the worst of post-pandemic credit normalization may be over.
