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Updated 5 min read
Capping credit card interest rates is starting to look like the hot policy idea of the season for populist lawmakers on both the left and right.
This month, Rep. Alexandria Ocasio-Cortez, the progressive star from New York, and Rep. Anna Paulina Luna, a MAGA favorite from Florida, teamed up to introduce a bill to limit credit card APRs at 10%. It follows similar legislation from Sens. Bernie Sanders, the independent of Vermont, and Republican Josh Hawley of Missouri, which would put in place the same 10% rate ceiling for five years.
The cost of credit has become a more pressing issue in recent years thanks to rising interest rates, which have helped fuel increasing delinquencies: The average APR was about 21.5% at the end of last year, up from 14.7% in 2020, according to the Federal Reserve.
For now, these bills mostly seem to be political signaling exercises that are unlikely to go anywhere soon. Democrats may also see them as a way of challenging President Trump to make good on his campaign-season promise to pass a credit card cap, an idea mostly embraced by progressives in the past. (In 2019, Sanders and Ocasio-Cortez unveiled the Loan Shark Prevention Act, which would have imposed a 15% limit on all interest rates.)
But the bipartisan enthusiasm suggests that limiting what card issuers can charge their customers may have legs down the line. For many voters, it’s a pressing pocketbook concern: About half of credit card accounts revolve a balance from month to month, while 13% of cardholders make only the minimum payment due, according to the Consumer Financial Protection Bureau.
Read more: Can you ask your credit card company for a lower APR?
As they’ve hiked interest rates, credit card companies’ margins have hit all-time highs. To some, that’s a sign that companies could continue lending profitably to most of their customers even with a rate cap cutting a bit into their profits.
The challenge, as almost any economist will note, is that limiting rates will likely mean less access to credit for Americans with weaker credit scores since lending to them won’t be as profitable.
That might be for the best for some households if it saves them from overborrowing. But many could be forced to resort to other, even less affordable types of debt to cover emergency expenses. And even without the aid of a high-APR credit card, some still find ways to make unaffordable purchases on credit, such as through buy now, pay later plans.
The question is how low is too low before restrictions do more harm than good. A 10% rate might be overly strict. But what about a 25% cap? Or 35%?