U.S. financial stocks dropped in premarket trading on Monday after President Donald Trump called for a one-year cap on credit card interest rates, putting into question a key revenue stream for banks and other lenders.
Trump on Friday called for a 10% cap starting Jan. 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 3.2% and 2.5%, respectively. Citigroup fell 3.6% while Wells Fargo declined 2.2%.
"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 card lender American Express tumbled 4%, while payment processors Visa and Mastercard slipped 1.2% and 2%, respectively.
Still, some analysts said imposing a limit on rates would require legislation and could exceed presidential authority.
"This idea has been raised by Trump previously and also by a couple of members of Congress in the past," Juneja said, adding that it is unclear whether Congress would enact anything for just one year.
Shares of consumer finance firms such as Synchrony Financial, Bread Financial and Capital One fell between 8% and 10%.
"When companies can't price the risk properly, they'll just reduce credit lines or cut off access to credit entirely. Buy now, pay later firms and payday lenders might love this proposal," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
BNPL lender Affirm's shares rose 2%.
The U.S. banking sector kicks off the fourth-quarter earnings season this week, with JPMorgan Chase set to report results on Tuesday, followed by Bank of America, Citigroup and Wells Fargo.
