SoFi CEO says Trump's credit card limit proposal is beneficial for the company

Summary

In response to President Trump’s proposal to cap credit card interest rates at 10% for one year, SoFi’s CEO stated this would be beneficial for the company.businessinsider The rationale is that traditional card issuers would be forced to drop higher-risk customers who would then turn to alternatives like SoFi’s personal loans.InfoCast+ 2 This news has caused shares of fintech companies, including SoFi and Block, to rise, as analysts see a potential growth opportunity from borrowers seeking new credit avenues.Tip Ranks

Impact Analysis

So they’re basically admitting the business model is to catch the customers that big banks shed. Trump’s proposed 10% rate cap would make a huge chunk of the credit card market unprofitable for traditional issuers, forcing them to cut off millions of customers.InfoCast+ 2 Noto’s bet is that these displaced borrowers come straight to SoFi for personal loans.businessinsider The market is eating up this growth narrative, bidding up fintech stocks.Tip Ranks But this is a classic ‘poisoned chalice’ scenario. We’re talking about taking on the exact customers the banks have decided they can’t profitably underwrite at a capped rate. It’s a massive potential boost to loan origination, but the embedded credit risk is huge and completely unproven at this scale. This is a pure bet on their underwriting models being fundamentally superior to the entire banking industry’s. I’m skeptical this proposal even passes, but if it does, the real story won’t be loan growth—it will be charge-offs in 18 months.