Why Would a Credit Card Rate Cap Restrict Lending?

TL;DR

Capping credit card interest rates could reduce access to credit because lenders must cover funding, operating costs, and borrower losses. Jenny Johnson also sees strong opportunities in private-market secondaries, real estate debt, asset-backed credit, AI-driven productivity, and the convergence of traditional finance with decentralized finance through blockchain-based products.

Transcript

It was telling for me when we looked back at the interview we had last year, which was two days after President Trump was inaugurated, and how much was expected for him to do in terms of investments in markets away from geopolitics. Where are we? So actually, you know, I think that what he had said at the time was he's going to reduce regulation an... Read More

Key Insights

• Credit card interest rates reflect three core components: lenders' cost of funds, operating expenses, and expected credit losses. A mandated cap can make some borrowers uneconomic to serve, causing lenders to restrict access rather than simply offering the same credit at a lower price.
• Private-market access is limited for average investors even as companies remain private longer and banks lend less than they once did. Regulatory clarity and products designed around individual risk and liquidity needs can help broaden access without ignoring the distinctive constraints of private investments.
• Franklin Templeton raised $23 billion in private markets last year, with more than 20% originating from the wealth channel. The firm has outlined a five-year goal of raising $100 billion and is targeting about $25 billion this year, supported by Lexington Fund 11.
• Private-market products must match an investor's risk tolerance and liquidity profile. Johnson describes structures that combine public and private assets or provide perpetual exposure with approximately 5% liquidity, allowing wealth clients to participate through formats designed for their practical needs.
• Private-equity secondaries can provide a liquidity mechanism when distributions from existing investments arrive more slowly than their historical pace. Johnson favors secondaries because investors can obtain diversified portfolios and receive cash flows earlier than they typically would in traditional private-equity funds.
• Private credit should be evaluated as a collection of distinct segments, much like a fixed-income portfolio. Johnson identifies real estate debt and asset-backed credit as attractive areas, while stressing that underwriting discipline and manager selection matter because performance varies significantly between top- and bottom-quartile managers.
• AI adoption is expected to produce uneven outcomes within industries. Companies that integrate it effectively may improve productivity and separate themselves from competitors, but near-term investment will also generate failures, dead ends, organizational resistance, and lessons that shape later implementation.
• Blockchain-based finance can reduce reconciliation costs, encode agreements through smart contracts, and function as a payment mechanism. Franklin Templeton's on-chain money market fund posts interest daily and is expected to support Saturday transfers into a stablecoin because the product operates natively on-chain.

Questions & Answers

Q: Why could a credit card interest rate cap restrict lending?

A credit card interest rate cap could restrict lending because pricing must account for the lender's cost of funds, operating expenses, and expected borrower losses. If the permitted rate cannot cover those costs for certain applicants, lenders may decide they cannot responsibly serve them. The result could be fewer people qualifying for credit, even though the policy is intended to improve affordability.

Q: How is Franklin Templeton expanding access to private markets?

Franklin Templeton is bringing private-market products into the wealth channel through structures designed around individual investors' risk and liquidity profiles. These can include products combining public and private assets or perpetual structures offering approximately 5% liquidity. The firm raised $23 billion in private markets last year, and more than 20% of that amount came from wealth-channel investors.

Q: How much does Franklin Templeton expect to raise in private markets?

Franklin Templeton has laid out a plan to raise $100 billion in private markets over five years. After raising $23 billion last year without a major flagship product in the market, the firm is targeting about $25 billion this year. Management expects Lexington Fund 11 to help make the current year larger than the previous one.

Q: Why are private-equity secondaries attractive now?

Private-equity secondaries are attractive because substantial amounts of private-equity capital have already been deployed, while liquidity has not returned as quickly as investors expected. Johnson says the current pace is about half its historical level. Secondaries give investors and fund holders another liquidity mechanism while offering diversified portfolios and earlier cash flows than traditional private-equity investments generally provide.

Q: Which areas of private credit does Jenny Johnson favor?

Jenny Johnson identifies real estate debt and asset-backed credit as attractive areas within private credit. Real estate debt benefits from regional banks lending less than they previously did, creating room for other capital providers. She also argues that investors should evaluate each private-credit segment separately and underwrite the overall allocation with the same discipline used for a fixed-income portfolio.

Q: How should investors prepare for market volatility?

Investors should prepare for volatility by holding genuinely diversified portfolios that can absorb short-term shocks from policy changes, tariffs, geopolitics, and shifting valuations. Johnson views volatility as a potential opportunity for active managers, but she emphasizes positioning before disruptions occur. Franklin Templeton's experience serving clients in 160 countries supports its focus on diversification across markets and investment exposures.

Q: How could AI affect company productivity and competition?

AI could create large productivity improvements and widen the gap between companies within the same sector. Johnson expects firms that implement it effectively to advance while others fall behind. Adoption will take time because companies must experiment, encounter failures, manage organizational resistance, and change established processes. She believes much of AI's productivity contribution is not yet reflected in reported numbers.

Q: How can blockchain connect traditional and decentralized finance?

Blockchain can connect traditional and decentralized finance by supporting investment products, programmable agreements, and payments on the same infrastructure. It provides a shared source of truth that can reduce costly data reconciliation, while smart contracts encode terms associated with token ownership. Franklin Templeton's on-chain money market fund demonstrates this model through daily interest posting and planned transfers into a stablecoin on Saturdays.

Summary & Key Takeaways

• Jenny Johnson argues that credit card rate caps sound attractive but could prevent lenders from serving riskier borrowers. Credit pricing reflects funding expenses, operating costs, and expected losses. If lenders cannot charge enough to cover those components, they may respond by restricting eligibility rather than continuing to extend credit broadly.

• Franklin Templeton raised $23 billion for private markets last year, with more than 20% coming through the wealth channel, and targets about $25 billion this year. Johnson favors secondaries, real estate debt, and asset-backed opportunities while emphasizing liquidity design, careful underwriting, diversification, and manager selection for individual investors.

• Johnson expects AI to transform company productivity, although adoption will involve failures, organizational resistance, and uneven results. She also expects traditional and decentralized finance to converge further in 2026 as blockchain enables a shared source of truth, programmable smart contracts, efficient payments, and transfers between on-chain investment products and stablecoins.