President Trump Wants to Cap Credit Card Interest Rates. Here’s Why That’s a Mistake
A populist fix for a problem that isn’t clearly broken—and why government price setting always makes things worse.
Hello Friends!
President Trump wants to cap credit card interest rates at 10% compared with the 20%+ most cards charge today. The justification is familiar: credit card rates are high, many households feel squeezed, and the government should step in to protect consumers.
That argument sounds appealing. But it rests on a fundamental misunderstanding of how credit markets work. Fortunately, Republicans in Congress are pushing back on this bad idea but ignore the damage already being done by another price-control proposal moving through Congress: the Credit Card Competition Act.
Together, these ideas reflect the same error: treating prices we don’t like as proof that markets are failing. They aren’t.
Credit Is a Price for Risk and Time
Credit is not free money. It is an agreement across time. A lender provides money today and gets repaid later, if all goes well.
Interest rates exist to manage that uncertainty. They reflect risk, the time value of money, inflation, and opportunity cost. Lending money today means it cannot be used elsewhere tomorrow.
Interest rates are not moral judgments. They are prices.
Capping interest rates does not eliminate risk. It prevents risk from being priced. When prices are forced below what risk requires, lenders respond the same way suppliers always do: they reduce supply.
That reduction hits marginal borrowers first.
Who Uses Credit—and Who Loses It When Prices Are Controlled
According to Federal Reserve survey data, more than 80 percent of U.S. households have at least one credit card, and most cardholders prefer using credit cards for everyday purchases. That access exists because lenders are allowed to price risk. But access is not equal.
Lower-income households are less likely to have credit cards. When they do, they are more likely to carry balances, especially during emergencies. These households rely on flexible credit the most—and they are the first to lose access when lending standards tighten.
A rate cap doesn’t protect them. It prices them out.
Big Debt Numbers Don’t Mean the Market Is Broken
Supporters of price controls often point to debt totals. According to the Federal Reserve Bank of New York, total household debt is about $18.6 trillion, including roughly $1.2 trillion in credit card balances, which make up about 20 percent of all non-housing debt.
Debt size alone doesn’t indicate failure. Repayment does.
About 12.4 percent of credit card balances are 90 or more days delinquent—elevated compared with recent years and near levels seen during the Great Financial Crisis.
Here’s the key point: there were no federal interest-rate caps during the financial crisis or the pandemic, and the credit card market did not collapse. Losses rose, lending tightened temporarily, and repayment normalized.
There is no new emergency today that suddenly justifies government price setting.
The Math Behind Credit Cards
Credit cards are expensive to operate. As outlined by the Committee to Unleash Prosperity, lenders face roughly:
4 percent in funding costs
6 percent in expected credit losses
5 percent in administration, fraud prevention, and collections
That’s more than 15 percent in costs before earning any return.
A 10 percent cap guarantees losses for many borrowers.
When losses are guaranteed, lenders respond logically. They tighten approval standards. They lower limits. They close accounts with weaker credit histories. Credit becomes concentrated among the safest borrowers.
That isn’t punishment. It’s arithmetic.
The Credit Card Competition Act Repeats the Same Mistake
Interest-rate caps aren’t the only price controls on the table. Congress is also considering the Credit Card Competition Act, which would force banks to route transactions over government-preferred payment networks.
Supporters claim this would lower costs. In reality, it suppresses another price in the credit system.
As explained in a coalition letter led by Americans for Tax Reform, payment-network revenue funds:
Fraud prevention and cybersecurity
Network reliability and innovation
Rewards programs like cash-back and travel points
When that revenue is reduced, those benefits don’t disappear evenly.
Rewards are cut first for everyday cardholders and small businesses. High-balance, premium users are protected the longest. Once again, costs don’t vanish—they get shifted.
The Credit Card Competition Act and interest-rate caps are two versions of the same policy instinct: control prices first, deal with consequences later.
Who Decides?
Both proposals rest on the idea that consumers make poor choices and need protection from themselves. That assumes policymakers can judge the tradeoffs facing millions of households better than individuals can.
Economic decisions are subjective. What looks irresponsible from the outside may be rational given income volatility, medical bills, or short-term shocks. We cannot observe the alternatives people reject.
Replacing individual judgment with political judgment isn’t economics.
It’s paternalism.
Closing Thoughts
Price controls don’t work. They don’t work for housing, labor, energy, or credit.
Capping interest rates and regulating payment networks won’t make credit cheaper for everyone. They will make it scarcer, reduce benefits, and limit options—especially for the people who rely on credit the most.
The price of credit is still a price. Suppress it, and the consequences follow.
Good intentions don’t change bad economics.
If you found this useful, please share it with someone who still believes price controls protect consumers. And subscribe for more economic analysis grounded in evidence, not slogans.
Let People Prosper,
Vance Ginn, Ph.D.