President Trump recently proposed a temporary 10% rate cap on credit card interest rates. On the surface, this seems like a good idea given that the average credit card interest rate exceeds 20%, and according to the New York Fed’s Quarterly Report on Household Debt and Credit, about 47% of American credit cardholders carry a balance from month to month.
While most consumers support such caps and clearly need debt relief, it’s important to consider the potential downsides. What might be the long-term impact of this cap, especially since it would only be in effect for 12 months? These are critical questions that deserve careful, fact-based consideration beyond politics or emotions.
As a consumer advocate, I have campaigned against egregious card rates in the 30%+ range for 25+ years. The reality is that rate caps aren’t a new idea—there have been multiple caps that have been put into effect in the past. Were these caps successful in lowering card debt?
Let’s explore this “hot button” issue and weigh the pros and cons. I want to be objective with the end goal of helping you lower your card debt and interest rates, and ultimately manage credit cards more effectively.
Have interest rate caps worked before? Evaluating the track record
I believe a little background on this topic will be helpful. While some consumers assume that capping interest rates is a new proposal, various types of caps have been implemented over the years. Let’s briefly explore a couple of these examples and assess their effectiveness.
For instance, Arkansas—my home state—had a usury law many years ago that capped credit card interest rates issued by Arkansas banks. The 1989 Arkansas “Interest Rate Control Amendment” included the following provision:
“The interest rate on consumer loans (including credit cards, home improvement loans, in-store retail financing, automobile financing, etc.) could float freely but was subject to a 17% ceiling (also known as a cap).”
When I began researching credit card offers over 25 years ago, Arkansas had some of the lowest card rates in the country. For example, Simmons Bank offered a low 8.50% fixed-rate credit card (most cards today have variable rates) with an annual fee of about $35.
While annual fees on low-rate cards are rare today, thousands of cardholders were happy to pay $35 to obtain a Simmons Card, especially if they were transferring a balance from a high-rate card charging 20% or more. In short, they could save hundreds, if not thousands, of dollars in interest or finance charges. One caveat is that Simmons only approved applicants with very high credit scores.
Gerri Detweiler, a credit expert and author of “The Ultimate Credit Repair Action Plan,” remembers this cap as well.
“When I started my career in the credit field, if you wanted a credit card with a low interest rate, you likely applied to a bank in Arkansas where interest rates were capped by state law,” she says. “Not everyone qualified, and the limits were often lower than what you might get elsewhere.”
Consumer advocates, like Detweiler and me, sang the praises of the Simmons card. Unfortunately, rate caps across the nation came under scrutiny and faced various legal challenges since then. One case even went to the Supreme Court.
Ruth Susswein, director of consumer protection at the nonprofit consumer rights and policy advocacy organization Consumer Action, explains that card issuers now are legally allowed to “export” the interest rates they charge to other states based on the Marquette Supreme Court case from 1978. Moreover, laws were passed that rolled back caps.
For instance, Congress passed the Financial Services Modernization Act of 1999 (also known as the Gramm-Leach-Bliley Act). One section of the law specifically targeted Arkansas and overrode the usury law.
Illinois imposed a 36% interest rate cap in 2021 with mixed results
More recently, the Illinois Predatory Loan Prevention Act (PLPA) imposed a 36% across-the-boar” interest rate cap on consumer loans made by any person or entity in 2021. One glaring exception was that the law excluded banks and credit unions.
The impact of the act has been debatable, though the results seem to be more negative than positive. Please note that while the act did not cap rates on cards specifically, it is reasonable to believe that a card cap would have a similar effect.
Case in point, one study found that Illinois’ 36% interest rate cap significantly reduced the availability of small-dollar credit and negatively impacted many consumers’ self-reported financial well-being. Similar caps tend to restrict credit availability as banks and lenders respond by tightening credit lines or closing accounts, with projections indicating that up to 85% of accounts could be affected. These measures often push consumers toward costly alternatives, such as payday lenders and other high-cost, less regulated options. Independent community bankers and other industry groups have expressed concerns that such rate caps could limit credit access for Americans, particularly those with lower credit scores, ultimately harming average American families by restricting affordable credit options.
Susswein, on the other hand, believes that while state or category-specific caps can benefit consumers, their impact on credit card rates is limited due to various loopholes in the laws, as previously described. She points out that “there are currently no meaningful usury caps on credit card rates because most issuers exploit legal workarounds to bypass state limits.”
BONUS TIP!
The Servicemembers Civil Relief Act (SCRA), which allows active duty military to lower their interest rates on credit cards to 6% on balances taken out before active duty, is very popular. Most consumer advocates would argue that this act is at least one example of rate caps being successful.
How is your credit card rate determined?
It’s important to understand how your card rate is determined to fully grasp this issue. Most card issuers use “risk-based pricing” to set the interest rate you qualify for when applying. Credit card companies and the broader financial services industry employ a systematic process that evaluates your creditworthiness and other factors to determine your rate. Risk-based pricing means most cards offer a range of interest rates—such as 16.99% to 28.99%—based on the assessed risk. Industry analysis supports risk-based pricing as a standard business practice among issuers.
The rate that you get will largely depend on your credit score. The bottom line is that if you are a lower risk, you will likely qualify for a lower rate. The process credit card companies follow involves assessing your credit profile, income, and other financial indicators to determine your individual card rate.
Some consumer advocates criticize risk-based pricing because of its lack of transparency. Detweiler notes that “interest rates on credit cards have largely moved to a risk-based pricing model where you apply before you find out what rate you’ll be charged.”
However, other experts defend this type of pricing. Megan Daniels, a travel writer and founder of JourneyCurrencies.com, argues that “if lenders can’t price for risk, they usually respond by limiting credit access, tightening approvals, or reducing the value of the card.”
BONUS TIP!
The good news is that you can increase your credit score for free using self-help techniques, even if you don’t have any credit history or if your credit is in bad shape. Increasing your score by only 10-20 points can result in significant interest rate savings.
Pros of a credit card interest rate cap
Now that you have some background on this topic, let’s briefly discuss a few noteworthy advantages to rate caps. While many consumer advocates (and I, in full disclosure) feel that the cons outweigh the pros, I want to present both viewpoints.
Instant debt relief
There’s no doubt that a rate cap could help consumers lower their finance charges quickly. Proponents suggest that this proposed one-year cap could save cardholders with a $5,000 credit card balance approximately $700 in interest payments.
Detweiler opines that “high interest rates make it hard for those who are struggling financially to make a meaningful dent in their debt, and many would benefit from a rate cut. A 10% across the board cap could provide significant relief to those with high balances at high rates.”
Potential for long-term savings
If a short-term rate cap were successful, it would seem that a case could be made for a more permanent cap. Proponents argue that this could be helpful, especially given the largely negative results of previous rate limits.
“Of course, no card issuer is going to willingly forgo the hefty profits they’re earning unless forced to,” says Susswein. “What we ought to focus on is would a rate cap be for show or permanent?”
Jason Steele, a nationally recognized expert on credit cards, opines that the cap is really more like a promotional financing offer than a true rate cap. Adding that “it seems to be ‘more of a tweet’ than a formal proposal.”
Despite such concerns, Susswein does feel that “if a permanent rate cap was imposed — and the rate was tied to an index that would fluctuate when lenders’ costs rose or fell — that could save folks a lot of money and make a real difference in what people could afford.”
A possible win-win for card issuers and consumers
Most experts who support caps are not totally anti-bank in their sentiment and believe card issuers should be able to make a profit. The real question becomes what rate would be reasonable for consumers and lenders?
The answer to this question is hard to determine, though. The theory here is that if this “sweet spot” can be determined, then cardholders would be happier customers and use their cards more (resulting in more profits).
A related challenge is that the perfect rate is a bit of a moving target, given that card rates are tied to an index, most notably the Prime Rate. Despite this reality, Susswein is convinced that lowering interest rates on credit cards can happen without hurting industry profits or restricting credit access.
“A strong case has been made by some very smart people that there’s ample room for credit card rates to drop significantly without restricting access to credit for nearly anyone,” she says.
What will be the long-term impact of a credit card interest rate cap?
While a cap might seem beneficial on the surface and helpful in the short term, the long-term reality – especially for subprime borrowers – could be devastating. I’ve learned over the past 25 years of covering this industry that any caps or laws that are implemented on behalf of consumers usually have unintended negative consequences.
A prime example is the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). This landmark legislation aimed to curb unfair credit card practices by enhancing transparency, limiting fees, and restricting sudden rate hikes.
While the CARD Act yielded positive short-term effects, studies such as the Unintended Consequences of the Credit Card Act reveal that, over time, it contributed to higher interest rates for consumers with poor credit and reduced credit limits for those with good credit.
Cons of a credit card interest rate cap
Here are a few of the potential negative outcomes of a rate cap:
Limits on lending access
Implementing a cap prevents banks from using risk-based pricing, which would likely force them to stop lending to subprime borrowers. This risks cutting off millions of consumers with limited credit history from a vital financial safety net—an outcome my colleague Richard Barrington explores in-depth in his article, “A credit card rate cap could shut millions out of credit.“
Steele believes it could affect more than just subprime consumers.
“I think it will affect most credit card users, not just subprime,” he says. “Very few consumers are a good risk at just 10%, and even those with excellent credit can expect cards stripped of benefits and rebates if the interest rate is a mere 10%.”
Detweiler agrees that the end “result may be lower credit limits, fewer approvals, and potentially fewer benefits.”
Barriers to mobility
Credit cards are a very popular and easy way to build or establish credit. If access is limited, many folks may lose the ability to build the credit history required to obtain mortgages, car loans, and other types of loans.
Moreover, it could be challenging to get low insurance rates or even rent an apartment. Simply put, the financial benefits of a good credit score can not be underestimated.
Predatory alternatives
When regulated credit disappears (cards are subject to various laws as noted above), consumers historically often turn to less regulated, more expensive options like payday loans and other costly alternatives.
“Capping rates won’t change the demand for borrowing. Instead, borrowers will turn to other types of loans including payday loans, BNPL, peer-to-peer lending, personal loans and informal lending arrangements aka ‘loan sharks,'” says Steele.
Such policies could drive consumers to seek out other cards with fewer benefits or less regulated financial products, which may be riskier or more expensive.
While some of these types of loans can help you build credit, they usually come with rates well above 10%, often much higher. For example, payday loans typically carry annual percentage rates (APRs) ranging from 391% to over 600%!
Secondary effects
To offset lost revenue, issuers will likely increase fees, including annual fees, and significantly reduce popular rewards and perks, which many cardholders value. A credit card interest rate cap could lead to the introduction of new service fees by credit card companies, and lenders might eliminate or scale back rewards programs to compensate for the reduced interest income.
Steele predicts that “should a long-term cap pass, there will certainly be fewer perks and higher fees on most products. We might also see a resurgence in charge cards, which require payment in full each month. Right now, there are only a handful of charge cards offered by major issuers.”
Daniels feels conflicted on rate caps because she values rewards programs. The points, benefits, and flexibility these programs offer make credit cards appealing to her. However, she worries that implementing a cap could not only reduce options for the very people the cap aims to protect but also weaken rewards and benefits for responsible cardholders.
BONUS TIP!
Cards issued by credit unions are subject to a 18% rate cap as of January 2026. This is good news if you are a member of a credit union. Unfortunately, the cap can and has changed, so it’s definitely not a permanent thing.
Final thoughts/alternatives
While it’s clear that the proposed credit card rate cap could provide temporary relief for consumers carrying card debt, the potential long-term negative consequences likely outweigh these short-term benefits. Lawmakers from both the Democratic and Republican parties have expressed concerns about high credit card interest rates, highlighting a widespread urgency across the nation. Understanding these complex financial issues is essential for Americans, as credit card policies significantly affect not only their economic well-being but also housing affordability and access to vital resources.
The more pressing question is what sustainable measures the government and consumer advocates can implement to help cardholders effectively pay down their debt. Broader economic priorities, including energy policy and other political initiatives, also influence the financial landscape for American families.
“Where I struggle with rate caps is that they don’t seem to solve the real problem for people stuck in debt,” says Daniels. “If the goal is to help people avoid debt traps, the focus should be on helping people get out of debt faster and building better habits, alongside stronger financial education earlier in life. Getting people out of debt faster helps today. Teaching financial literacy earlier helps prevent it tomorrow.”
Susswein adds that if you’re carrying a significant amount of debt, it’s wise to consider transferring your balance to a 0% introductory rate offer lasting up to 21 months. Although there may be initial transfer fees, these offers can substantially reduce the interest charges you pay over time.
Daniels sums things up best by defending risk-based pricing.
“Being from an insurance background, I think about it like insurance. Insurance is a necessary risk and nobody likes premiums, but the company needs to make money for consumers to find value in them,” she explains. “Pricing for risk isn’t about punishing people. It’s what keeps the balance between lenders, responsible cardholders, and those who need access even when they’re higher risk.”
Finally, even if no legislation is passed, the proposal has already produced positive results. Detweiler explains that “this conversation has sparked a new look at credit card rates, and what consumer protections are needed,” including consumer education. The ongoing debate and policy proposals show that America is actively seeking solutions, and there is hope that progress will move forward to benefit all Americans.
