Why a Flat Credit Card Rate Cap Could Harm Working Families

In partnership with

Marisa Calderon is President and CEO of Prosperity Now, a national nonprofit advancing economic mobility and financial security for U.S. households.

Americans are right to be frustrated by rising credit card interest rates. Policymakers are also right to want to respond. Affordability pressures are real and persistent. Credit card rates are near historic highs at the same time that housing, food, childcare, and transportation costs continue to strain household budgets. For many families, credit cards are not a luxury. They are a tool for managing cash flow when paychecks do not line up with expenses or when emergencies hit. But they are expensive tools.

Right Problem, Wrong Solution

Shared affordability concerns have helped drive bipartisan interest in capping credit card interest rates at a flat 10 percent. Lower rates are, in principle, a reasonable goal. The problem is not the desire to reduce borrowing costs. The problem is the imposition of an arbitrary cap that does not reflect how consumer credit markets actually work and risks constricting access to credit for the very households policymakers want to support. 

Credit cards are unsecured, revolving products that depend on risk-based pricing. When lenders cannot price for risk, they do not simply absorb losses. They adjust underwriting standards, reduce credit limits, or stop offering credit to certain borrowers altogether. This is not a speculative concern. It is how credit markets respond to price controls in practice. 

The U.S. credit card market includes hundreds of millions of accounts across a wide range of credit profiles. A nationwide 10 percent cap, imposed quickly and well below prevailing rates, would force issuers to reassess risk almost immediately. The most likely outcome would not be universal rate reductions, but tighter approval standards, smaller credit lines, and fewer options for borrowers with limited or uneven credit histories. 

Those changes would fall hardest on households with lower or moderate incomes and consumers who rely on credit cards to manage short-term volatility. Reduced credit limits can also have secondary effects. Even borrowers who continue paying on time may see their credit scores decline as utilization ratios rise, making other forms of borrowing more expensive or harder to access.

What History Shows  

We do not have to guess how this plays out. There is real-world evidence. In 1980, the Carter Administration briefly imposed federal credit controls in response to inflationary pressures. At the time, less than half of American households held a general-purpose credit card, a fraction of today’s market of roughly 642 million card accounts. Within months, the contraction in consumer credit was so severe that the Administration rescinded the credit controls effort. Economists and the Federal Reserve have since cited the episode as a cautionary example of how rapid, blunt interventions in credit markets can sharply reduce lending and contribute to broader economic strain.   

A more recent example comes from the 2015 expansion of the Military Lending Act, which imposed a 36 percent APR cap for military families. Studies found no measurable improvement in overall credit health for the broader military population. In fact, research suggests that service members with deep subprime credit scores experienced reduced access to certain forms of credit, raising concerns about displacement toward fewer or more costly alternatives. The lesson is not that protections are unwarranted, but that blunt caps can produce uneven effects across different borrowers and products. 

A nationwide 10 percent cap would be far more restrictive and applied across a much larger, more diverse market. It is difficult to see how such a policy would avoid even sharper credit tightening, particularly for low- to moderate-income households. 

The Chainsaw and the Scalpel

Concerns about reduced access to credit are sometimes dismissed as industry talking points. But they are echoed by independent researchers, former regulators, and academic experts who have been openly critical of current credit card pricing practices. Their conclusion is not that the current system is ideal. It is that blunt, one-size-fits-all caps are a poorly targeted tool that create predictable and lasting unintended consequences. 

Temporary caps carry additional risks. Credit markets do not automatically rebound after price controls are lifted. Issuers that exit certain segments of the market may be slow to return, if they return at all. Credit lines cut during a temporary policy may not be restored, and the downstream effects on consumers’ credit profiles can persist long after the policy ends. 

None of this suggests that high borrowing costs should be ignored. They are a real and growing burden for many households. But solutions that rely on abrupt, short-term interventions risk creating instability that consumers ultimately bear. When access to credit is suddenly restricted and later restored, families are left navigating whiplash in their financial options. Durable reforms should be grounded in evidence, reflect how credit markets actually function, and prioritize long-term stability for households.  

There are more constructive options available. Policymakers can focus on increasing competition and transparency, addressing back-end fees and penalty structures that raise effective borrowing costs, and expanding access to safer, lower-cost credit alternatives through regulated channels. They can also explore more nuanced approaches that account for income and risk rather than imposing a single nationwide ceiling. 

What’s at Stake 

The bipartisan concern driving interest in capping credit card rates reflects a real economic challenge. The test of any solution should be whether it helps families manage debt without cutting them off from the tools they rely on to navigate financial shocks and uncertainty. 

Lower interest rates are a worthy objective. Fewer credit options are not. Reducing access to credit would carry consequences that extend well beyond interest rates alone. When access tightens abruptly, the effects are not contained. They show up in reduced spending, delayed investments, and fewer options for managing shocks and uncertainty.  

Any reform aimed at easing financial strain should be evaluated by whether it delivers lasting relief without narrowing the very pathways families rely on when conditions change. The challenge is not choosing between affordability and access, but ensuring policy does not sacrifice one in pursuit of the other. 

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

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