A Bipartisan Push Toward Credit Card Rate Caps Could Have Negative Impacts on Credit Access

• In the wake of President Donald Trump’s campaign promise last fall to put a temporary cap on credit card interest rates, Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO) introduced a bill last week to install a five-year limit of 10%.
• The legislation aims to address rising credit card debt and high delinquency rates not seen since the aftermath of the Great Recession.
• The market dynamics behind the proposal establish it as a non-starter for those seeking readier consumer access to lower-cost credit.

It was more than a marriage of convenience last week when Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO) teamed up to push back against credit card interest rates, proposing a five-year 10% cap.

Often ideological opposites, Sanders and Hawley share a populist stance on financial issues. Responding to recent reports from the Federal Reserve of total credit card debt approaching $1.2 trillion and delinquencies reaching highs not seen since 2011, they’re both on the record against what they see as the excesses and exploitative lending practices of big banks.

Plus, the optics were terrific. “When large financial institutions charge over 25 percent interest on credit cards, they are not engaged in the business of making credit available. They are engaged in extortion and loan sharking,” Sanders thundered in his statement announcing the bill.

Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO) have proposed legislation to cap credit card interest rates at 10% for five years.

Hawley thundered, too. “Working Americans are drowning in record credit card debt while the biggest credit card issuers get richer and richer by hiking their interest rates to the moon,” he said. “It’s not just wrong, it’s exploitative.”

It was an opportunity for Sanders and Hawley to align with a promise by then-Republican presidential candidate Donald Trump at a campaign stop in New York last September 18 to “put a temporary cap” of 10% on rates.

“We can’t let them make 25 and 30 percent,” Trump said at the time.

But Sanders and Hawley (and sometimes Trump, depending on whether he’s in his populist or elitist mode) will hurt more than help credit card consumers — including those in the subprime space — if they get their way.

As you’ll soon see, proposals to cap rates put politics over the pragmatism of the market and prioritize symbolic action over the potential long-term consequences for consumers and credit markets.

All it takes is a bit of economic reasoning to see why. Consumers may rightly feel besieged by average interest rates that stood in the latest Fed data at 21.47% for all credit card accounts amid reports of record bank profits.

But arguing that interest rates are the sole cause of the imbalances we see would be absurd. Why? Some consumers are still recovering from the hits to savings and job security associated with the COVID-19 pandemic. Meanwhile, ongoing inflation has increased consumer spending and means that wage earners often can’t keep pace with the new realities of 2025.

Many find themselves borrowing and reborrowing in counterproductive debt cycles — including from alternative lenders with little oversight — that have them gathering negative momentum toward a make-or-break debt spiral.

Institutions need the ability to appeal to a broad range of consumers to address the broadest range of consumer financial challenges.

Financial institutions can position themselves to address these challenges only if they retain the ability to appeal to a broad range of consumers. By maintaining a healthy profit margin, banks can offer a variety of credit products (including rewards cards, travel cards, and low-interest credit-building options) that cater to different consumer needs and preferences.

That holds for community banks, credit unions, and fintechs as it does in enterprise financial services. The Sanders-Hawley legislation proposes a 180-degree turn in the opposite direction. The margin hit that would result could transform the competitive playing field in ways difficult to predict:

• Profit margin pressures could drive some institutions to shift business models, cut costs, or join the M&A trend.
• When the environment favors consolidation, smaller institutions struggling to remain competitive become prime exit candidates, reducing consumer choice.
• Issuers could tighten credit approval criteria as a result, reducing access for subprime borrowers. Consumers with limited credit histories and lower credit scores could find the road to sustainability narrower than in the past.
• One upshot could be a reduction in unsecured credit options, putting more consumers in the crosshairs of higher-risk lenders.
• Increases in annual, late payment, and balance transfer fees would be a predictable result, with financial institutions jumping on the current trend to explore more creative ways to increase non-interest revenue.
• Reducing rewards, cash back, and other perks would also help compensate for the loss of interest income, possibly increasing customer churn.
• Alternative credit providers could receive a pronounced boost as consumers move away from traditional lenders and turn to less-regulated markets, including short-term, high-interest loans; buy now, pay later services; and fintechs with variable rates and fees.
• On a positive note, any earnings contraction stemming from an interest-rate limit would surely spur banks and credit unions to innovate to serve subprime customers and members more effectively.

Corporate profit creates consumer opportunity. That maxim is just as true in financial services as it is anywhere. Providers interested in serving the subprime space need the flexibility to respond to market and competitive challenges in ways that help the greatest number of consumers.