Perhaps feeling the heat of “affordability” concerns, President Donald Trump recently revived one of those bad ideas that never seem to die: a cap on credit card interest rates. His current proposal would limit rates to 10 percent, reportedly for one year.
On its face, the pitch sounds appealing. As of November 2025, the median bank credit-card annual percentage rate (across all accounts) was roughly 25.3 percent. Americans are now carrying record credit-card debt. Washington already regulates how credit cards disclose costs, and it even restricts certain fees. Why not cap the interest rate, too?
Economic research provides a clear answer. If the government forces the price of credit below its market-clearing rate, the result will not be the same amount of credit at a lower price. It will be less credit for the least creditworthy. These borrowers will substitute to other, riskier products, while everyone else will have to pay more.
The cleanest modern evidence for the effects of a credit-card cap comes from quasi-experiments around binding caps—that is, limits that force issuers to set prices for credit below what they otherwise would. One study looks at the effects of state-level caps at 36 percent on all nonbank small-dollar lenders—a group that includes credit-card issuers.
Under these caps, credit contracted sharply for the riskiest borrowers. For those in the bottom decile of credit scores, debt balances fell about 16.9 percent—not because these borrowers became less delinquent, but because they had 20 percent fewer accounts than comparable borrowers in control states. The cap, in other words, cut many people off from credit.
That’s in part because caps drive lenders out of the market. Both Illinois and South Dakota have capped rates at 36 percent. In each state, the number of affected lenders fell the year after the cap—by 19 percent in Illinois and 50 percent in South Dakota. That means that lenders were either exiting the market or scaling back their operations as a result of the cap.
Arkansas’s constitutional rate ceiling has also resulted in lower usage of higher-cost credit among state residents. Compared with similar Arkansans, nonprime borrowers in neighboring states have 12.8 percentage points higher incidence (meaning they’re more likely to have a positive consumer-finance-loan balance) and balances that are $600 higher. Consumer-finance credit usage in Arkansas is about 40 percent lower than in neighboring states.
International evidence reveals a similar pattern. A study of Chile estimated that its cap reduced the probability of access to credit by 8.7 percent and likely excluded 9.7 percent of borrowers from the market.
Supporters of caps often see these results as positive. What’s so bad about less borrowing at higher rates? But the question becomes: What replaced high-rate borrowing? Consumers’ credit needs don’t just vanish—they re-route into other products, fees, or informal alternatives.
For instance, among car buyers with very low credit scores (below 560), the share receiving dealer financing rises from 23 percent in no-limit states to about 36 percent in states with credit-card interest-rate limits. In other words, the caps reroute the riskiest borrowers into dealer financing. Under the caps, interest rates drop by 6 to 8 percentage points, but loan-to-value ratios increase by 40 to 60 percentage points, and monthly payments can rise because the financed amount of the car inflates.
The lesson here is not that caps never reduce rates—they do. It’s that markets often respond by moving credit costs into other, less obvious areas: bigger principal or different add-ons, fee structures, and intermediaries.
There’s also a less-discussed cost: rewards. Credit-card points and cash back are not manna from heaven; they’re funded by the overall economics of the card relationship. In 2024 alone, consumers earned $47.5 billion in credit-card rewards. A hard 10 percent cap would compress revenue on revolving balances, so issuers would predictably respond by reducing rewards—smaller sign-up bonuses, weaker points multipliers, tighter underwriting, or higher annual fees. A conservative approach to the problem of rising household debt would start with reforms that improve competition and transparency without shutting off access to credit: make pricing more salient, reduce switching friction, improve bank disclosures, promote financial literacy, and target abusive fees.
That means moving beyond APR-in-the-fine-print to dollars-and-cents transparency—monthly statements and payment screens that show how much interest and fees a borrower paid and how much extra the minimum payment will cost over time. It also means focusing regulators on genuinely abusive back-end charges—opaque penalty fees and fee-stacking—while expanding practical, just-in-time financial education that helps households avoid revolving balances in the first place.
Above all, reforms should be built on recognition that the price of unsecured, revolving credit is inseparable from risk. Proposals for a 10 percent cap try to legislate that reality away. The economic evidence is clear: the result won’t be cheaper credit for everyone. It will be rationed credit for many—and a reshuffled set of costs for the rest.
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