LIVE MARKETS-Fundstrat: Credit-card rate cap may also hurt airlines, hotels, retailers

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FUNDSTRAT: CREDIT-CARD RATE CAP MAY ALSO HURT AIRLINES, HOTELS, RETAILERS

In a busy news week one key development that had Wall Street buzzing was U.S. President Donald Trump's proposed capping of credit-card interest rates and his support for cutting card swipe fees.

Kent Fung, vice president in Market Intelligence at Fundstrat, writes that the negative impact from such a move would go beyond card issuers and payment networks, whose shares were hammered this week, and would also directly hurt industries ranging from airlines and hotel chains to major retailers.

Fung notes that roughly one-third of U.S. consumer spending is done through credit cards, and that based on 2025 estimates this would have represented a potential $7 trillion in purchases. And he writes that an estimated 82% of adult Americans have at least one credit card and cites the latest Experian data estimating an average 3.7 card accounts per person.

While Trump found some rare support from Democrats including Senator Elizabeth Warren, market watchers seemed unconvinced that a 10% cap on interest rates that can surpass 20% would help ease the pressure for these cardholders.

Instead, financial industry executives and investors suggested that such a move would likely weigh down overall consumer spending and therefore the economy. One argument Fung cites is that card issuers would need to respond by taking on less risk - by approving fewer card applications and focusing more on "low-risk/high-income applicants" and lowering credit limits. Some cards may even end up being canceled.

Shares of card issuers such as American Express AXP.N and Capital One COF.N have pared some losses but were still down more than 2% and more than 3% for the week. Payment network shares also suffered, with Visa V.N down more than 6% for the week so far and Mastercard MA.N off almost 6%.

Outside of the traditional financial industry, Fundstrat highlights airlines as likely casualties of the proposal. Fung writes that "airlines typically make as much from their participation in branded cards as they do on core flight operations" because they get a cut of the swipe fees that Trump wants to reduce. So far for the week the S&P 500 Passenger Airlines index .SPLRCALI is down about 2.3%, which would be its biggest weekly drop since the week beginning Oct. 27.

Other industries where branded credit cards are common and potentially hurt by the proposal include hotel chains and retailers, according to the report.

But one industry that Fung suggests as a potential beneficiary of the Trump proposal is energy companies that operate gas stations.

Fung notes that gas station operators often complain about high swipe fees - their biggest operating expense after labor. The issue with gas stations is that the expense can't be mitigated with branded loyalty cards because drivers are not typically loyal to any station as "they accurately view gas as a commodity and mostly decide where to fill up based on price, location, and convenience."

(Sinéad Carew)

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