The call for capping credit card interest rates at 10%, echoing from both a former President and a prominent Senator, feels instinctively appealing. It taps into a very real frustration felt by millions struggling with rising costs and stagnant incomes. But a surge in popularity doesn’t automatically equate to sound policy, and history offers a stark warning.
Having witnessed firsthand the economic successes of a previous administration – successes built on the foundations of deregulation, competition, and respecting market forces – the shift towards price controls feels deeply concerning. That approach broadened access to financial tools, lowered costs, and fueled substantial growth. To now embrace policies reminiscent of a socialist playbook is a jarring departure from that proven record.
Price controls on credit aren’t a novel idea; they’ve been tried repeatedly, and the results have consistently been disastrous. The individuals who would ultimately suffer the most are those with less-than-perfect credit histories – the very people who rely on access to credit to navigate financial challenges and build a future.
Credit card companies don’t arbitrarily set interest rates. They are a direct reflection of risk. When lenders are prevented from charging rates that accurately reflect the likelihood of default, they inevitably curtail lending to higher-risk borrowers. A 10% cap doesn’t eliminate risk; it simply removes the mechanism for pricing it, effectively shutting off access for millions.
Estimates suggest that at least 137 million cardholders could lose access to their credit lines under such a cap. These aren’t abstract numbers; they represent individuals who depend on credit for emergencies, bridging gaps between paychecks, or establishing a credit history. Denied access to legitimate credit, they’ll be forced into the shadows, vulnerable to predatory payday lenders, pawn shops, and illegal loan sharks.
The consequences of such policies have played out before. Interest rate caps in the 1970s crippled consumer credit until a Supreme Court ruling intervened. France’s stringent usury laws have created a permanent underclass excluded from the formal credit system. Japan’s 2006 caps led to the collapse of its consumer finance industry, pushing desperate borrowers into the clutches of organized crime.
Even the argument that these caps would curb “excessive” profits falls apart under scrutiny. Credit card companies operate on surprisingly thin margins, as high default rates consume a significant portion of the revenue. Returns on equity, while healthy, are hardly exorbitant when weighed against the inherent risks involved in lending.
The true solution lies not in artificial constraints, but in fostering competition and empowering consumers with financial literacy. Removing barriers to entry for new lenders, demanding transparent disclosure of terms, and promoting alternatives like credit-builder loans and secured cards would genuinely expand access to credit.
A previous administration understood this fundamental principle: trust markets to function effectively. Replacing that approach with price controls and fee ceilings won’t create a more compassionate economy. It will shrink the economy, constrict opportunity, and disproportionately harm those who can least afford it.
Politicians who promise to “fight” credit card companies with rate caps are, in reality, battling the immutable laws of economics. These laws, like those of physics, are impervious to legislative declarations. The financially vulnerable will be the first to learn this lesson, discovering that a higher-rate card they *can* obtain is far more valuable than a 10% card they *cannot*.
The path to financial exclusion is paved with good intentions. Instead, let’s focus on fostering economic growth through market-oriented solutions – solutions that have already proven their effectiveness. Let’s build a system that expands opportunity, rather than restricting it.
