Credit Card Rate Caps Are Bad News for Individuals and Businesses

This op-ed was originally published in Real Clear Markets.

Credit markets have transformed America, allowing countless businesses and families to finance their futures. Nearly 80 percent of Americans own a credit card, and an astounding 94 percent of these consumers value the convenience of ready access to funds. Economist Steve Moore said it best: “access to credit has been almost fully democratized. Everyone is using them.”

President Trump’s unfortunate new proposal to cap interest rates threatens to disrupt that convenient capital. On January 9, the President posted on Truth Social that he is “calling for a one year cap on Credit Card Interest Rates of 10%” effective January 20 to prevent Americans from being “ripped off” by credit card companies. Trump also told credit card companies that they’d be breaking the law by charging more than 10 percent interest. The truth is that card companies are providing a service that is overwhelmingly popular and pivotal for economic growth. Instead of cutting credit cards, President Trump can help borrowers by ditching costly regulations.

For millions of Americans struggling to make ends meet, credit cards and various loan services can offer a helpful hand up. Lenders have been eager to extend credit, albeit at higher prices—or interest rates—charged to risky borrowers at risk of default. Resulting financial services markets have lifted people out of poverty around the world. According to a sweeping 2022 analysis by Bangladeshi and Japanese economists examining data from 156 countries, there’s a close relationship between “a steady increase in financial inclusion [e.g., access to credit markets] and a continuous drop in the poverty rate.” Interest rate caps harm that progress by making it impossible for lenders to recoup losses from high-risk borrowers.

Interest rate caps will not result in lower prices, but they will result in far fewer people having credit. As the Electronic Payments Coalition found in a recently-released study, “nearly 90% of current cardholders – between 175-190 million Americans – would effectively lose access to credit” under a 10 percent cap. Further, “All remaining cardholders — regardless of credit score — would face lower credit limits, tighter underwriting standards, and reduced or eliminated rewards.”

Lenders have little issue with offering struggling low-credit-score households a second chance, but the books simply won’t balance with a maximum 10 percent interest rate.

Instead of pursuing a heavy-handed approach, policymakers could ease credit regulations in ways that expand access to legitimate and transparent borrowing for people teetering on the financial brink. One option is to modernize ability-to-repay and underwriting rules to better reflect real-world income patterns. Many struggling Americans have irregular earnings—gig work, seasonal jobs, or fluctuating hours—that traditional underwriting models discount or ignore. Regulators could provide safe harbors allowing banks and credit unions to use alternative data (such as verified cash-flow, utility payments, or rental history) without heightened supervisory risk.

Lawmakers could also expand regulatory sandboxes and pilot programs that let lenders test innovative and lower-cost credit products without fear of retroactive enforcement, while still enforcing core anti-fraud and disclosure rules. In contrast, taking the rigid approach of capping credit card interest rates will almost backfire and make life harder for millions of Americans. Households need choice, convenience, and flexibility, not red tape.