Concerns about affordability are prevalent among Americans, especially regarding health care, housing, groceries, and utilities. Many people find it increasingly difficult to manage these daily expenses.
In light of this, President Donald Trump and Republicans in Congress are advocating for policies aimed at reducing costs for Americans. However, while presidents and Republicans often have strong economic knowledge, some proposed measures might unwittingly exacerbate the affordability crisis.
Take, for instance, the proposed 10% cap on credit card interest rates. History suggests that such price controls can have unintended, negative effects on families and small businesses alike. When governments impose artificially low prices in competitive markets, the outcome tends to be a decrease in supply—a pattern that isn’t just theoretical, but well-documented.
Back in 1971, President Nixon’s price controls on retail gasoline led to increased demand because gas was cheaper at the pump. But because retailers couldn’t cover their costs due to these price caps, gasoline supply dwindled, causing shortages and long lines for consumers.
Similarly, in major cities like New York, San Francisco, and Los Angeles, rent caps prevent landlords from recouping maintenance costs, leading to poor property upkeep and a shortage of housing options.
Would credit card price caps have a similar impact? Likely. Reduced availability of credit could follow. Banks set interest rates on credit cards to account for various costs and risks associated with them, including administration and security. Capping rates at levels like 10% would force banks to compensate for lost revenue by either hiking fees or limiting access to credit for riskier customers.
Without access to credit cards, some consumers might turn to more expensive and precarious options like payday lenders. The Cato Institute has pointed out the historical downsides of price regulation, indicating that it often results in shortages and black markets—ultimately, consumers suffer.
For those who retain their credit cards, banks might cut back on rewards programs and other benefits, compensating for lost interest income with higher fees for all users. Economist Stephen Moore has highlighted that interest rate caps could disrupt a market that is working well, stating that credit cards are more popular than ever, and suggesting that there’s no need for intervention.
Americans have long used credit cards for a variety of purposes—starting businesses, borrowing funds, and making daily purchases. Free markets have made these activities feasible, and government should not interfere with that. Instead, it should focus on ensuring transparency, competition, and stability rather than imposing price controls, which typically lead to dysfunction.
Support for caps on credit card interest rates has come from figures like Sens. Elizabeth Warren, Bernie Sanders, and Maxine Waters. Thankfully, many Republicans, including leaders like Sens. Mike Rounds and John Thune, have expressed skepticism about these proposals, recognizing the potential loss of access to credit for many individuals.
Free markets tend to provide options that better meet consumer needs than government-imposed limits. It’s crucial that Congress allows the market to continue delivering necessary credit access to people across all income levels, including working families and small businesses.
