Klarna CEO Backs Trump's 10% Credit Card Cap

Klarna CEO Sebastian Siemiatkowski has publicly supported President Donald Trump's proposal to cap credit card interest rates at 10% for one year. Siemiatkowski argues that the current credit card system traps lower-income borrowers in expensive debt while rewarding wealthier consumers. He claims that traditional credit cards are designed to encourage consumers to carry large balances at high interest rates, which leads to significant financial losses for vulnerable populations.

The Klarna CEO also criticized credit card rewards programs, stating they effectively redistribute income from poorer borrowers to wealthier shoppers. While financial analysts warn that a rate cap could reduce credit availability, Siemiatkowski defends his company's buy now, pay later model as a more responsible alternative. Trump's proposal has already impacted financial markets, causing a sell-off in major bank stocks.

Klarna CEO Sebastian Siemiatkowski told CNBC that President Donald Trump's plan to cap credit card interest rates at 10% for one year "makes a lot of sense." Siemiatkowski expressed agreement with the proposal on Monday, characterizing the President's approach as "wise." The endorsement comes as Trump pushes for temporary limits on lending costs to protect consumers.

Siemiatkowski argues that the structure of traditional credit cards is problematic. "Traditional credit cards are designed to push consumers to put most or all of their spending on credit and carry large balances at high interest rates," he explained. He believes this design incentivizes excessive borrowing and results in higher losses, particularly among lower-income borrowers. The Klarna CEO emphasized the need for regulatory boundaries, stating, "Capitalism is great, but anarchy is not," arguing that some limits are necessary to protect consumers from predatory lending practices.

In a separate interview, Sebastian Siemiatkowski criticized credit card rewards programs, including cash back and airline miles. He argued that these programs "mainly benefit wealthier consumers" while lower-income borrowers bear the associated costs. Siemiatkowski highlighted a mechanism where merchants raise prices to cover credit card fees, meaning even those who do not use credit cards pay more for everyday goods.

Wealthier shoppers, however, recover these increased costs through rewards programs. Siemiatkowski described this dynamic as "the most effective income redistribution program in the world." He contends that the current system effectively transfers wealth from poorer segments of the population to those who can afford to leverage credit card rewards.

President Trump's weekend call for a rate cap triggered an immediate market reaction on Monday. Major financial stocks experienced a sell-off, including Capital One, Synchrony Financial, JPMorgan, and Citigroup. Investors reacted to the potential regulatory changes that could impact the profitability of lending institutions.

Analysts at UBS and Goldman Sachs have warned that a 10% cap on credit card interest rates could backfire. They suggest that lenders might respond by cutting back on credit availability, making it more difficult for some consumers to access loans. However, the proposal could also create winners in the financial sector. SoFi CEO Anthony Noto commented on Saturday that the proposal might drive consumers away from credit cards and toward personal loans.

Sebastian Siemiatkowski addressed criticisms regarding buy now, pay later services potentially encouraging overspending. He asserted that Klarna is built around smaller purchases with fixed, interest-free payments, contrasting this with traditional credit card structures. The CEO detailed the company's real-time approval process, which relies on a customer's current spending behavior rather than potentially outdated income data.

According to Siemiatkowski, this approach results in customers borrowing less frequently and falling behind on payments less often. He positioned Klarna's model as a safer alternative to traditional credit, suggesting that his company's technology allows for more responsible lending decisions compared to legacy banking systems.