by Charles McQueen, President - MQueen Financial Advisors

President Trump has proposed a 10% cap on credit card interest rates.  In this article, we 
explore the effect on community banks and credit unions. 

The National Landscape: Transactors vs. Revolvers 
To understand the impact of an interest rate cap, we must first segment the credit card user 
base. The industry distinguishes between two primary cohorts: 

• Transactors: These individuals use credit cards as a convenient payment tool and pay 
  their balances in full each month. For this group, the APR is largely irrelevant, as they 
  rarely incur interest charges.  Therefore, the average balance outstanding during a month 
  is a cost to the issuer of the credit card.
• Revolvers: These individuals carry a balance from month to month, utilizing the card as a 
  line of credit. Revolvers are the only segment impacted by interest rate changes, as 
  they are the source of all credit card interest income for financial institutions. 

Balance and Interest Calculation: Transactors & Revolvers 
To calculate the income and cost of a credit card portfolio, we must understand who pays 
interest and who does not.  Further, we need to understand the average outstanding balance. 

According to recent 2025 data from the American Bankers Association, Revolvers make up 
approximately 40.3% of all cardholders, while Transactors account for 36.1% (with the 
remainder being dormant accounts). Removing the dormant accounts from our calculation, 
we end up with 43% of the cardholders are Transactors and 53% are Revolvers. 

It is important to remember that credit card Transactors do not pay interest on the balance 
outstanding during the month.  Effectively, this is a free loan intra month which is part of the 
overall profitability buildup to set the interest rates on the product.  We assume that the 
month end balance of Transactors is charged evenly over the month, so the average balance 
is 50% of the ending balance. 

Factual Benchmarking: Current Market Rates 
While the national conversation often focuses on "Big Bank" rates, community banks and 
credit unions operate in a significantly different rate environment. 

The effective yield is calculated by calculating 47% of the balance as Revolvers and 53% of 
the balance as Transactors with 50% of the Transactors balance outstanding. 

As the data shows, McQueen Financial Advisors (MFA) clients, who are community banks and 
credit unions located throughout the country, are providing rates significantly lower than the 
national commercial bank average. MFA clients, in particular, are nearly 46% lower than the 
national commercial average (large credit card banks), reflecting a commitment to community 
customer-centric pricing. 

The Economic Effect of a 10% Cap 
If a 10% interest rate cap were enacted, it would create a fundamental shift in the risk-reward 
calculus for community financial institutions. 

1. Effect of Revenue on Revolver accounts 
For the average MFA client (12.37% yield), a 10% cap represents a 237 basis point reduction 
in yield. The 10% yield cap will result in an average yield of 8.55% when properly breaking out 
the Revolvers and Transactors as we did in the table above. 

Because credit card lending is unsecured it carries higher delinquency risks and losses.  The 
2025 charge off rate, according to the CFPB 2025 report to Congress, is 4.90%.  Community 
banks and credit unions have experienced a lower charge off rate calculated at 3.92% by the 
Federal Reserve Bank of St Louis as of September 30, 2025. 

2. Tightening of Credit Access for Revolvers & Transactors 
Transactors are loaned money throughout the month to use, and then pay it off at month end. 
Credit card issuers do not know who will be a Transactor or Revolver any given month, so the 
interest paid by Revolvers must cover Transactors average monthly balance. Community 
banks and CUs, unable to price for the risk of "subprime" or even "near-prime" borrowers 
under a 10% ceiling, would likely be forced to modify both Revolver and Transactor accounts 
by: 

• Increase minimum FICO score requirements.
• Drastically reduce credit limits.
• Closing accounts on subprime borrowers.
• Exit the credit card product line entirely, pushing consumers toward high-cost alternative 
  lenders (e.g., payday loans). 

3. Industry Thoughts on Tightening of Credit Access 
Industry analysis from the American Bankers Association (ABA) suggests that a 10% cap 
could lead to the closure of up to 85% of open credit card accounts.  We at MFA think the 
number will be smaller, but nonetheless there will be significant account closures. 

4. Thoughts on a One Year Term 
The current political comments are recommending a one year 10% cap.  Given the history of 
short-term fixes by our government, we would expect that Congress would extend the 10% 
limit to “look good” to get re-elected. 

The Pro-Forma Impact: A $100M Credit Card Portfolio 
To visualize the "why" behind the industry’s concern, we can look at the estimated profitability 
of a revolving portfolio before and after the cap. 

Portfolio Profitability Comparison 

Fees are not taken into account in the above analysis as fees vary significantly by issuer and 
by card use (late payments, etc.).  Many issuers have suggested that the fees cover the cost of 
the perks associated with the credit card, and do not enhance the return. 

Factual: The Community Financial Institution Value 

MFA clients are already the "good actors" in the marketplace. While the national average 
for large commercial banks hovers near 20%, MFA clients are yielding an average of 12.37%. 
Community Banks and Credit Unions are already operating with a yield that is 7.53% lower 
than the national average. A further reduction to 10% leaves most, if not all, community 
financial institution credit card portfolios effectively unprofitable. 

Summation 
For the Revolver, the proposed 10% cap is a double-edged sword. While it promises lower 
interest costs, the data suggest it may actually lead to credit evaporation for nearly all 
cardholders. For MFA clients and community financial institutions, the 10% cap represents a 
"floor" that is too low to support the operational costs of lending to anyone other than the 
most affluent, potentially pushing the very people it aims to protect toward far more 
expensive, less-regulated "shadow banking." 

The proposed rate cap of 10% will make credit card lending unprofitable for most community 
banks and credit unions and it will lead to a significant reduction in credit availability for many 
Americans. 

About MFA: 
McQueen Financial Advisors is an SEC-registered investment advisory firm, specializing in 
three specific areas of the business. Investment management, Asset Liability Management and 
CECL, and Mergers and Valuations. Our Investment team manages over $10 billion in 
investment portfolios for our clients, including financial Institutions, foundations and 
nonprofits, and individuals. The investment team includes word class credit analysis and 
reporting. Our Asset Liability Management team provides a full suite of reporting to our clients 
who are in nearly every state in the country. Reporting includes IRR, liquidity, concentration, 
prepayment, and core deposit studies. Our Valuation and Advisory services provide merger 
valuation reporting, advisory services, and MSR valuations. 

For more information, please contact Emma Davis at [email protected] or 248.548.8400