OPINION:
Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
Just as minimum wage laws intended to raise incomes for lower earners end up costing some of them their entire incomes, President Trump’s plan to cap credit card interest rates at 10% would dramatically limit access to borrowing for the 60% of borrowers without “superprime” credit.
The hardest hit, however, will be those with poor credit who need credit. Even those with solid credit who are able to retain their credit cards will be slammed by shrinking rewards programs and new non-interest fees and penalties.
With current rates averaging about 21%, credit cards are among the highest interest rates consumers face. Although 81% of American adults own credit cards, only those who don’t pay their balance every month incur those interest rates. According to Federal Reserve data, 37% of Americans carried a credit card balance at least one month over the prior year.
For those who regularly finance everyday purchases with credit cards, interest and debt can add up quickly. Someone who puts $500 of groceries onto a credit card monthly and makes only minimum payments will pay about $650 in interest over one year.
Although credit card interest is high compared with home and other personal loans, putting certain expenses on a credit card is often the best, and sometimes the only, borrowing option. For someone who needs a $3,000 emergency car repair, a credit card can serve as a one-year loan with a total interest cost of $290. That’s better than the alternative of borrowing from a loan shark at 100% or 1,000% interest.
A 10% interest rate cap could eliminate the credit card option for at least half of current credit card holders because it would make lending to them unprofitable for banks (the source of credit card loans).
Although $1 million in revolving debt at an average rate of 21% generates $210,000 in finance charges annually for the bank, it isn’t pure profit. Credit card companies use that revenue to pay interest on bank deposits, provide customer rewards, fight fraud and cover loan losses or charge-offs. Charge-offs alone have averaged more than 5% of revolving debt balances over the past two years.
After paying these expenses, banks’ net return on revolving and purchase credit card balances is typically less than 2%, or roughly $20,000 in profit per $1 million of balances.
Given that the market rate is 21% overall, most current lending via credit cards would be unprofitable under Mr. Trump’s proposed cap. According to the 2025 Consumer Financial Protection Bureau report released in December, annual effective interest rates for general-purpose credit cards ranged from 11% for superprime borrowers to 22% for prime borrowers and 25% for subprime borrowers (580-619 FICO scores).
Just as car insurance companies wouldn’t issue policies for teenage drivers if the top rate they could charge equaled the rate reserved for the safest soccer mom drivers, credit card companies won’t give platinum-rate credit cards to roughly 60% of borrowers who have less than superprime credit (720-850 FICO scores).
Less than 3 in 5 borrowers with prime credit and less than 1 in 3 near-prime borrowers are approved for new lines of credit. Federal Reserve data shows that credit card access is already limited for people who are younger, have lower incomes, are Black or Hispanic, or have disabilities.
Multiple studies show that capping interest rates not only locks out small and higher-risk borrowers but also leads to higher non-interest fees and penalties and can push locked-out borrowers to loan sharks that charge 1,000% interest rates.
If credit card caps won’t help Americans who can’t afford their ordinary expenses, then what will? Affordability is as much about someone’s ability to pay for something as it is about the price of that product or service.
In both instances, government policies hurt instead of help. In manufacturing, government regulations cost the average employer $29,100 per employee, according to the National Association of Manufacturers. They are passed along via higher costs for consumers and lower wages for manufacturing workers.
To enable rising incomes, policymakers should expand alternative education opportunities, eliminate welfare without work and remove government-imposed barriers to work and higher wages.
To help drive down the cost of producing goods and services, policymakers should eliminate unnecessary regulations and other limits on supply. To reduce interest rates, policymakers should reduce federal spending, which causes the government to bid against families and businesses for limited capital.
A 10% cap on credit card rates is just another form of price control that will deny families temporary financial resources. Expect more bankruptcies, ruined credit histories and increased reliance on predatory lenders, because a rate cap would dry up the supply of legitimate credit.
Price controls on any good or service ultimately create shortages. Price controls on the most convenient way to borrow money are no different and will disproportionately hurt the very people they aim to help.
Correction: A previous version of this piece listed the incorrect employer for one of the authors.
• Rachel Greszler is senior research fellow in the Plymouth Institute For Free Enterprise at Advancing American Freedom. Joel Griffith is the senior fellow for economic prosperity at Advancing American Freedom.
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