With political discourse suddenly targeting credit card interest rates, the entire lending industry is on high alert. To make sense of the potential fallout, we sat down with Nicholas Braiden, a FinTech visionary and an early adopter of blockchain technology, who has spent his career at the intersection of finance and innovation. Today, he helps us navigate the complex landscape of a potential 10% rate cap, exploring the drastic operational shifts issuers would be forced to make, the very real consequences for consumers and merchants, and the unconventional strategies—from overhauling payment structures to revisiting decades-old tax law—that could be deployed to mitigate a crisis that threatens to stall the engine of consumer credit.
A proposed 10% rate cap could force issuers to cut off lending to 114 million adults with FICO scores below 740. Could you walk us through the financial reality behind such a drastic measure and what that would look like operationally on day one?
Absolutely. This isn’t about being punitive; it’s about pure financial survival. Our simulations show that a mandated 10% cap would be catastrophic for profitability, potentially leading to a 6.4% negative return on assets. Lenders have a fundamental responsibility to their investors and to the stability of their own balance sheets to operate in a safe and sound manner. You simply cannot lend money when you know it will result in a significant loss. Operationally, the change would be immediate and severe. It would mean implementing a hard FICO Score cutoff of 740. Any application or existing credit line for someone below that score—representing 114 million American adults—would be frozen or denied. It’s a brutal but necessary step to stop the financial bleeding and prevent a complete collapse of the business model.
One of the countermeasures you’ve discussed is a complete overhaul of the minimum payment calculation, drawing inspiration from a model used in Ontario. How exactly would increasing that payment shield issuers from the risk of a 10% cap, and what would be the immediate effect on households?
The current American minimum payment model, which is often just 1/36th of the balance, barely covers the interest and does very little to pay down the principal. It keeps consumers in debt longer and exposes lenders to prolonged risk. If we adopted a model similar to Ontario’s, which requires payments to amortize at a 5% of balance standard, or even doubled our own standard, it would fundamentally change the risk dynamic. A higher payment aggressively pays down the principal each month, reducing the lender’s overall exposure much more quickly. This provides a critical buffer against the thin margins of a 10% rate. However, the impact on consumers would be immediate and painful. For households already stretched thin, being hit with a higher mandatory payment and simultaneously having their overall credit availability reduced would almost certainly trigger a significant spike in delinquencies.
You’ve also raised the fascinating idea of a blended model incorporating transaction fees, similar to principles in Sharia-compliant finance. From a practical standpoint, how could an issuer implement this kind of structure, and what do you see as the biggest roadblocks to getting it off the ground?
This is where we have to think outside the conventional box. Islamic finance prohibits charging interest, or riba, but it does allow for fees for services. To offset the massive revenue disruption from a price control, issuers could pivot to a blended model: a lower interest rate paired with a transaction fee on borrowing. In practice, this would mean re-engineering the entire revenue stream, which is a monumental task. The biggest hurdles are twofold. First, you have the regulatory mountain to climb. Gaining endorsement for a new fee-based system in a politically charged environment would be incredibly difficult. Second is consumer acceptance. Imagine the marketing challenge: telling customers that even with a mandated low interest rate, they’ll now have a new fee. It would feel like a bait-and-switch to many, making it a very tough sell, even if it’s the only way to keep credit flowing.
With a potential rate cap jeopardizing a large portion of the $4 trillion in annual credit card spending, merchants seem to be caught in the crossfire. What should they be doing right now to prepare, and how could this disruption in consumer credit spill over into other lending markets?
Merchants should be on high alert because that $4 trillion is the lifeblood of the consumer economy. When credit availability for nearly half the adult population vanishes overnight, it will hit everything from durable goods and electronics to everyday groceries. The first step for merchants is to start scenario planning for a significant drop in sales and exploring alternative financing partnerships. The spillover effect is the most dangerous part of this. A government mandate on credit card rates sets a chilling precedent. Investors and lenders in the auto and consumer loan markets will immediately become risk-averse, wondering if their sectors are next. This uncertainty could create a credit contagion, causing a tightening of lending across the entire financial system and amplifying the economic damage far beyond just credit cards.
Your suggestion to reinstate the tax deductibility of credit card interest is a bold one, reversing a policy from the Tax Reform Act of 1986. How would this actually help consumers, and what kind of political lift would be required to make it a reality?
Bringing back tax deductibility is a creative solution because it shields the consumer without crippling the issuer. For a consumer, being able to deduct their credit card interest from their taxes would effectively lower their borrowing cost, making the current average interest rate of 22.25% more manageable. The exact benefit would depend on their adjusted gross income, but for many households, it would provide meaningful financial relief. The political challenge, however, is immense. That deduction was eliminated decades ago specifically to curb inflation and encourage savings. To reverse such a long-standing policy would require a massive, coordinated lobbying effort from the entire banking industry to convince Washington that it’s a necessary lever to pull to prevent a full-blown credit market collapse.
What is your forecast for the credit card industry if rate controls become a central political issue?
If rate controls become a political football, the forecast is deeply unsettling. The industry would immediately shift into a defensive, risk-averse posture. The primary focus would no longer be on growth or innovation but on protecting the balance sheet. This translates to a brutal credit crunch for consumers, particularly those outside the prime credit tiers. For merchants, it means facing a sustained drop in sales. For issuers, it is a fundamental revenue crisis that forces a complete and painful reinvention of their business model. And for investors, the situation becomes completely untenable. It would be a prolonged period of market disruption, reduced credit access, and economic uncertainty for everyone involved.