A 10% Credit Card Rate Cap: How a “Pro-Consumer” Policy Could Trigger a Banking Shock in 2026

Mr Donald has created a Herculean task for the new U.S President who will be coming in the next 3 years. Trust is broken, promises are broken, and most importantly, you are under the rule of a gangster type world. 3^rd world War probability or predictions of a third world war have gone up post the Venezuela matter. The recent announcement for the benefit of the mid-term elections for Mr Trump will create another recipe for a global financial crisis in the coming years.

Trade Wars and the Silent Collapse of Purchasing Power. The purchasing power chart of the U.S. dollar tells this story clearly. Major declines have coincided not just with monetary expansion, but with periods of policy-driven inefficiency and fiscal strain. A renewed trade war risks repeating this pattern. As tariffs proliferate and global trade fragments, inflationary pressures rise while growth weakens, a combination that steadily erodes real incomes. Now, Mr. Trump injects another steroid, which will create demand for more steroids in the coming years.

The proposal to impose a one-year cap of 10% on credit card interest rates in the United States is a case in point. While politically appealing and superficially pro-consumer, such a measure risks undermining the very foundations of modern banking, with spillover effects that could extend well beyond U.S. borders and into global currency markets, including the Indian rupee. 

The repercussions would not stop at U.S. borders. For emerging markets, including India, a weakening dollar coupled with rising global risk aversion presents a complex challenge. The dollar’s purchasing power has already been structurally eroded over the past few decades, with a notable decline even in recent years.

Credit card lending sits at the riskiest end of the consumer finance spectrum. It is unsecured, highly cyclical, and disproportionately exposed to income shocks. Interest rates in the 20–30% range are not arbitrary or exploitative by design; they represent the economic price of elevated default risk, fraud losses, regulatory capital requirements, and the rising cost of funds in a tightening monetary environment.

When inflation erodes household purchasing power and delinquencies rise, lenders must either price that risk appropriately or withdraw credit altogether. A statutory cap at 10% does not eliminate these risks—it merely prevents banks from acknowledging them in pricing.

Faced with such constraints, banks would respond in the only rational way available to them: by restricting credit supply. Rather than extending unsecured credit at a loss, lenders would tighten approval standards, reduce credit limits, and shift costs into fees and penalties.

The borrowers most affected would be those at the margin—precisely the households the policy is intended to protect. Over time, this contraction in revolving credit would suppress consumer spending, which remains the backbone of the U.S. economy.

As spending slows, corporate revenues weaken, employment conditions soften, and income insecurity rises, leading to higher delinquencies not only on credit cards but across auto loans, personal loans, and even mortgages.

Spillover to INR and Emerging Market Currencies

For India and other emerging markets, the effects are complex and asymmetric.

Short-Term:

• A weaker dollar may temporarily support INR stability
• Capital flows into EM debt and equities could increase

Medium-Term (More Dangerous):

• Global risk aversion rises if U.S. banks wobble
• FIIs retreat to safety despite lower U.S. yields
• Commodity volatility increases, impacting import inflation

For India specifically:

• Imported inflation risk rises
• RBI policy flexibility narrows
• Currency management becomes harder, not easier

In short, U.S. credit stress does not stay local.

 How “Good Intentions” Become Credit Events

Capping credit card rates at 10% does not eliminate consumer stress. It redistributes it, from borrowers to banks, and then back to the economy at large.

The likely sequence is clear:

• Credit contraction
• Small bank stress
• Consumption slowdown
• Rising delinquencies
• Currency volatility
• Global spillovers

This is how a headline-friendly idea becomes a catalyst for systemic risk. Credit systems do not fail because risk exists; they fail when risk is ignored, suppressed, or misallocated.