Sen. Bernie Sanders (I-VT) calls credit card lending “extortion and loan sharking,” comparing lenders to the usurers Dante placed in Hell. His proposed solution, starting with a five-year 10% interest rate cap, might sound appealing. But it would devastate the very families he claims to protect.
First, let’s address his claim that credit card lending amounts to extortion and loan sharking. Extortion involves coercion and threats. Loan sharking involves predatory lending backed by violence at triple-digit interest rates. Credit cards involve neither. Every transaction is voluntary. Terms are disclosed upfront. Customers can pay off their balances anytime without penalty.
Yes, interest rates average more than 20%. But this reflects real costs, which Sanders ignores. Banks must cover deposit interest, rewards programs, fraud prevention, and loan losses. Charge-offs are often the biggest expense, averaging over 5% of balances. As a result, banks’ net return on credit card balances is typically less than 2% annually. The socialist senator from Vermont must have a novel definition of loan sharking.
Sanders correctly notes that President Donald Trump’s proposed one-year cap at 10% would leave many consumers worse off, but not for the reason Sanders claims. He presumes that families will saddle themselves with more debt during that year, subjecting themselves to higher rates later. What he fails to understand is that price controls on capital will shrink the supply of credit available for most borrowers. Sanders’s alternative, a five-year cap moving toward permanent limits, would cause even longer-term pain for families. According to the Consumer Financial Protection Bureau, effective rates are 11% for superprime borrowers, 22% for prime borrowers, and 25% for subprime borrowers. A 10% cap makes lending unprofitable to roughly 60% of Americans. The most vulnerable would permanently lose access to legitimate credit.
Sanders continues to rely on economic myths to buttress his attempt at deeper government involvement in finance. He claims “the working class falls further and further behind.” But real median household income has increased 39% over the past 40 years, and real hourly compensation, which includes health insurance and other benefits, is up 52%. The typical American family has far more purchasing power today than in 1984.
Cutting off their credit access isn’t the solution to greater prosperity. True affordability comes from unleashing our economy to produce more. When productivity rises, real wages rise. When supply expands, prices fall. But government policies undermine this.
Taxing capital reduces productivity-enhancing investment. Regulations cost $29,100 per employee in manufacturing, passed along through higher prices and lower wages. Government spending diverts capital from private investment, driving up interest rates economy-wide. Tariffs directly increase consumer prices and manufacturing input costs while reducing competition.
If we’re serious about affordability, we need policies that encourage capital formation, eliminate unnecessary regulations, restore fiscal discipline, and expand rather than restrict market access.
Consider the evidence. When Illinois imposed a 36% cap, lending to subprime borrowers fell 38% and financial well-being worsened. Studies show that rate caps increase fees and push borrowers toward actual predators charging triple-digit rates. Federal Reserve data show credit access is already most limited for young people, low-income families, minorities, and people with disabilities. Sanders’ cap would devastate these groups.
RESTORING AMERICA: RUBIO’S CHURCHILLIAN MOMENT IN MUNICH
Economist Milton Friedman warned against judging policies by intentions rather than results. Sanders intends to help working families. But his cap would lock millions out of credit, increase bankruptcies, and push desperate families toward actual loan sharks. A family facing a $3,000 emergency car repair can borrow on a credit card and pay $300 in interest. Without that option, they may lose their job.
Sanders’s rhetoric makes good political theater. But it’s not good economics or policy. Price controls on credit will hurt the very people they’re meant to help. If we want to make life more affordable for working families, we need to grow the economy, not strangle the credit market.