COMMENTARY: A credit card rate cap is rife with unintended consequences

Over the past five years, Americans have been grappling with an affordability crisis. As a result, many families are confronting bills they can’t manage. Medical expenses and housing costs are through the roof. Electricity prices have jumped more than 30 percent.

Policymakers are right to give this crisis the attention it desperately deserves. As often happens during a crisis, the best of intentions can lead to some bad ideas. Proposals to cap credit card interest rates are just such an example.

Sens. Bernie Sanders and Elizabeth Warren are calling for a 10 percent cap on credit card interest rates. Disappointingly, President Donald Trump has embraced that position. For families facing mounting debts, and for so many Americans deeply frustrated by rising prices, it’s just the kind of forceful policy they want. However, a rate cap will almost certainly do more harm than good, and the Americans who will be hurt the most are the people such a proposal is intended to help.

Credit cards are not tools of frivolity. For low-income households in particular, they’re a lifeline — an alternative to check cashers and payday loans. They can also be a critically important tool to deal with unforeseen expenses or financial hardship.

Higher-rate cards allow banks to manage risk and offer credit to people who might not otherwise qualify. They’re also the gateway for consumers to rebuild credit after hard times.

Capping credit card rates at 10 percent would tie banks’ hands. A recent industry study found that if the 10 percent cap were put in place, nearly 90 percent of current cardholders — between 175 million and 190 million Americans — would see their access to credit severely reduced. Credit card issuers caution that any American with a credit score under 740, which is far above the national average, would probably have their card eliminated or their credit limit slashed.

Even if the industry’s analysis is exaggerated, the real-world consequences would be a disaster. When Americans need access to credit more than ever to navigate rough patches or manage spiking winter energy bills, tens of millions of families could see it disappear. That can’t possibly be the right answer.

We should know better. Government-mandated price caps are not a new policy idea. We’ve tried them before with predictably dismal results. President Jimmy Carter attempted to impose credit controls, but that effort was quickly scrapped after doing more harm than good. A Richmond Fed study of that effort, the 1980 U.S. credit control program, found that imposing credit-price restrictions caused lenders to cut card issuance, reducing credit availability and doing measurable damage to the economy. Is this really a mistake we want to repeat?

There is no debate that we need urgent action to lower costs and help Americans reduce their debt. However, the right approach is with smart, market-oriented solutions. In other words, less regulatory overreach, not far more.

Consider the success story that is the Texas housing market. Despite a soaring population, efforts to cut red tape and allow developers to build have actually cut costs. Apartment rents in Austin fell 6.6 percent in 2025. That is consumer relief.

Falling prices are possible, but they’re the product of competition and market-driven problem-solving. Americans are hurting, but we’ve got to remember the wrong remedy can be worse than the disease. Unintentionally slashing Americans’ access to credit amid an affordability crisis would be exactly that.

Matthew Kandrach is president of Consumer Action for a Strong Economy. He wrote this for InsideSources.com.