US credit card interest to be capped at 10% – what it means to UAE residents

Dubai: When US President Donald Trump called for a one-year cap on credit card interest rates at 10%, he reignited a long-running debate about the price of borrowing, the power of banks, and how far governments should go to protect consumers.

The proposal, announced on social media and reinforced in comments to reporters, would take effect on January 20, 2026. Trump said lenders charging more than 10% after that date would be “in violation of the law,” though he has not outlined how such a cap would be enforced or what legal authority would underpin it.

For UAE residents, the plan does not change anything directly. Local banks set interest rates under UAE regulations. Yet the size of the US credit market, the global reach of US financial institutions, and the influence of US policy debates mean the issue carries wider implications that could ripple across markets, lenders, and consumer finance worldwide.

Why Trump is pushing the idea

Trump has framed the proposal as a response to rising financial pressure on American households.

US credit card debt reached about $1.23 trillion by the third quarter of 2025, according to data from the New York Federal Reserve. Average annual percentage rates on cards have hovered above 20% in recent years, with many consumers paying closer to 25% or even 30%.

In practical terms, that means interest alone can rival rent or school fees.

For a household carrying the national average balance of about $6,500 (Dh24,000), an APR of 21% translates into about $1,300 (Dh5,000) in interest over a year if the debt is not paid down. Under a 10% cap, that drops to roughly $650 (Dh2,500).

Trump argues that cutting that burden would free up cash, ease stress, and help families regain control of their finances. “People don’t know they’re paying 30%,” he said. “They’re working and have no idea they’re paying 30%.”

Supporters of the cap say Americans could save tens of billions of dollars in interest over a year, money that could go toward essentials, repayments, or consumption.

What changes for US consumers

If a 10% ceiling were enforced, cardholders who keep balances would see their monthly interest charges fall sharply.

Lower rates could encourage faster repayment, shrinking outstanding debt. Some economists say that could support household balance sheets at a time when inflation and living costs remain politically sensitive.

Yet cheaper borrowing could also have the opposite effect. When the cost of credit falls, people sometimes use it more. That could lift spending, benefiting retailers and service companies, even as total balances remain high.

The biggest unknown is access. Credit card pricing is built on risk. Borrowers with weaker credit histories pay more because banks expect higher default rates. If US lenders are prevented from charging above 10%, some high-risk accounts may no longer make economic sense.

Analysts warn banks could respond by tightening approvals, lowering credit limits, or closing accounts altogether. Some estimates suggest tens of millions of people could see reduced access to credit if issuers move quickly to protect profitability.

For households living paycheque to paycheque, that shift could be more painful than high interest. It could push people toward unregulated lenders, payday loans, or informal borrowing, where effective rates can be far higher.

Effects on banks, card companies

Not all players in the card ecosystem face the same exposure. Visa and Mastercard run global payment networks. They earn fees from transactions, not interest. They do not lend money or carry consumer debt on their balance sheets. A rate cap would affect them indirectly, through changes in spending or card usage.

Issuers face the real impact. Global credit card companies American Express, Capital One, JPMorgan Chase, and Discover generate large portions of revenue from interest on revolving balances.

American Express reported about $19 billion in interest income in the first nine months of 2025. Capital One’s net interest income jumped 24% year-on-year in the third quarter alone, as higher rates widened margins. Its credit card loan book stood at about $271 billion.

A hard cap at 10% would more than halve yields on many accounts. Banks say that loss cannot simply be absorbed. They argue it would force changes across the business model, from higher annual fees and reduced rewards, to narrower lending criteria and smaller credit books.

Industry groups said they shared the goal of affordability but warned a 10% ceiling could “reduce credit availability and be devastating” for families and small businesses that rely on cards for short-term funding.

Legal and political hurdles in US

Trump’s demand is not backed by legislation. He has not pointed to an existing law that would allow a president to impose a nationwide cap on private lending rates.

In the US system, such changes typically require congressional approval. Interest rates sit within a complex framework of federal rules, state usury laws, and regulatory oversight.

Banks are widely expected to challenge any attempt to impose a cap without new legislation. Even supporters of tougher credit rules say a policy of this scale would face court battles that could delay or derail it.

Why this matters beyond the US

For UAE residents, the relevance lies less in the rate itself and more in what it signals.

US policy debates shape global financial sentiment. Major card issuers and banks operate internationally, partner with Gulf institutions, and influence investor behaviour.

A sharp regulatory shift in the world’s largest consumer credit market can move bank stocks, affect funding costs, and reshape how global lenders think about risk, pricing, and digital payments.

It also reflects a broader political theme resonating worldwide: pressure on governments to respond to debt, affordability, and the everyday cost of money.

Whether or not Trump’s cap becomes law, it highlights how quickly the rules of consumer finance can be pulled into the political spotlight, and how decisions in Washington can echo far beyond US borders.

For UAE consumers, who are seeing rapid growth in digital payments, buy-now-pay-later products, and personal credit, the debate offers a window into how markets behave when governments try to redraw the price of borrowing.

And it raises a question that extends well beyond the US: when debt becomes too expensive for households, who ultimately pays the price — banks, borrowers, or the wider economy?