A proposal pitched as a way to help consumers struggling with interest rates is unsettling the financial sector. As President Donald Trump and other populist lawmakers push for a 10% cap on credit card interest rates, banks argue that such a cap could limit access to credit.
Trump initially proposed during his 2024 presidential campaign a one-year 10% cap to help “working Americans catch up” on payments. This was due to higher interest rates and inflation running near 3%.
It seemed like a throwaway line at the time. And financial analysts quickly dismissed it as election-year politics that would go nowhere in Congress.
But with Trump back in the White House, the credit card interest rate cap issue is drawing support from an ideologically disparate group of lawmakers, to put it mildly.
Early last year, Sens. Bernie Sanders (I-VT) and Josh Hawley (R-MO) teamed up with Reps. Alexandria Ocasio-Cortez (D-NY) and Anna Paulina Luna (R-FL) on interest rate cap legislation. Unlike the president’s suggestion, the bill aimed to cap rates for five years and force creditors to forfeit all debt interest if they knowingly violated the ceiling. The bill failed to get a hearing in either the House or the Senate.
The proposal gained new momentum late last year after the Federal Reserve Bank of New York reported that American adults carried $1.27 trillion in credit card debt. That’s nearly 6% higher than 2024. Nearly half carried a balance month to month, and 23% did not have a clear repayment plan.
The Federal Reserve reported Americans were paying, on average, between 19% and 21% in interest on credit cards. It was around 12% a decade ago.
Supporters saw this as a new urgency for Washington to act.
Following Sanders’s accusations that Trump reneged on his promise, Trump in January resurrected the 10% cap proposal.
“We will no longer let the American Public be ‘ripped off’ by Credit Card Companies that are charging Interest Rates of 20 to 30%, and even more,” Trump wrote on Truth Social.
Weeks later, at the World Economic Forum, Trump said the cap would help Americans save for a home. “[Americans] have no idea they’re paying 28% [interest]. They go out there, a little late on their payment, and they end up losing their house,” he said. “It’s terrible.”
While Trump hasn’t endorsed the Hawley-Sanders legislation, the Missouri Republican used the president’s comments to press Congress into acting.
“It’s not just wrong, it’s exploitive,” Hawley said. “And it needs to end.”
Unintended Consequences?
Banking organizations have said Americans deserve access to more affordable credit, but pushed back on the 10% cap proposal.
The American Bankers Association released data showing that roughly 75% of Americans with open credit cards would see their limits reduced or their accounts closed if an interest rate cap were enacted. They said this would include at least 71% of borrowers with a credit score above 600.
Cardholders with credit scores above 780 were also likely to see higher fees and lower credit limits. They would also see their benefits and rewards reduced.
The cap would backfire and reduce credit availability, said a recent joint statement from ABA, the Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America.
“This cap would only drive consumers toward less regulated, more costly alternatives,” the group said.
The interest rate cap could also have negative effects on Americans with lower incomes and credit scores — potentially pushing them out of the mainstream credit market. America’s Credit Unions, a group representing credit unions on Capitol Hill, said those people would turn to riskier ways to get money, potentially dampening consumer spending.
The group also warned that price controls shift credit costs and would lead to more administrative fees, further damaging affordability.
Some banks have gone further than warnings.
JPMorgan Chase CFO Jeremy Barnum threatened to take the federal government to court if it considered the price controls. He said the bank would reduce its supply of credit instead of lowering prices, which “would be bad for everyone.”
It would also be in shareholders’ best interests to legally fight any cap. “You have to assume that everything’s on the table,” Barnum said.
Credit card interest rates and household debt have sharply climbed since the COVID-19 pandemic, fueling a political push for intervention. The average annual percentage rate on credit cards stands near 21%, according to the Fed, up from roughly 12% in 2016.
Over the long term, credit card rates have increased 5% since 1994, when the Fed began tracking APR changes. Much of that rise, however, has occurred over the past decade and shot up in 2022 as the central bank focused on taming inflation.
While politicians see the 10% cap as a way to contain costs, economists and financial analysts argue the policy carries unintended consequences.
John Berlau, a senior fellow at the Competitive Enterprise Institute, said entrepreneurs turned to credit cards as startup capital for initial expenses. He said that famous American movie-makers such as Quentin Tarantino and Spike Lee used credit cards to finance their films because they couldn’t get a bank loan.
“I would think it would damage American competitiveness,” Berlau said in an interview.
Academic research suggests it’s not uncommon for businesses to rely on credit. A Becker Friedman Institute for Economics working paper found that between 2021 and 2023, over 55% of businesses used business credit cards when traditional financing wasn’t available. This was despite the Fed’s decision to increase interest rates.
Other policy analysts argued that the proposal extends beyond consumer borrowing.
RESTORING AMERICA: CAPS ON CREDIT CARD INTEREST RATES WILL CRIPPLE AMERICAN SMALL BUSINESSES
“Price controls have never worked,” said Tommy Aiello, senior director of government affairs for the National Taxpayers Union. “They generate changes to the market that cause shortages almost immediately.”
The 10% APR cap continues to have supporters in Congress and the White House, as the Trump administration looks to lower prices. It could end up being an example of a policy meant to help consumers that instead undermines the very economic conditions the administration wants to improve.
Taylor Millard is a freelance journalist who lives in Virginia. Follow him on X @TaylorMillard.