Will capping credit card interest rates help?

Capping interest rates can reduce borrowing costs for many households, but it also tends to shrink access to credit and shift costs into other channels; whether it “helps” depends heavily on where the cap is set, who you care about (prime vs subprime), and how issuers are allowed to respond.

What caps can do well

• Lower interest costs for revolvers. Modeling of national caps at 18–15–10 percent suggests an 18 percent cap could save Americans about 16 billion dollars per year, a 15 percent cap about 48 billion, and a 10 percent cap roughly 100 billion, largely by cutting interest paid by people who carry balances.​

• Push down the most extreme pricing. Many small‑dollar and fringe‑credit products run well above 36 percent APR; advocates point to a 36 percent ceiling as a widely accepted line between sustainable and predatory small‑loan pricing that can force lenders toward longer terms and more affordable payment structures.

• Strengthen fairness narratives. Historically, state usury ceilings held card APRs nearer 10–12 percent before 1978, and supporters argue that restoring some version of those constraints would realign pricing with perceived risk without eliminating mainstream cards.​

Main risks and downsides

• Reduced access, especially for higher‑risk borrowers. Industry and think‑tank analyses of a 10 percent cap estimate that lenders would cut or sharply shrink lines for millions of families whose existing APRs are materially above the cap, with one study projecting that over 14 million U.S. households that rarely pay in full would lose all or part of their card credit lines.

• Credit rationing in practice. When lenders cannot price for risk, they tighten standards, deny more applications, and reallocate credit toward safer segments, a pattern seen repeatedly in small‑dollar markets and highlighted in critiques warning that rate caps “will result in credit rationing for high‑risk borrowers.”

• Migration to costlier, less regulated products. Trade groups and some researchers warn that tight caps, especially around 10 percent, would push many denied card borrowers toward non‑bank or lightly regulated alternatives, such as payday loans or certain buy‑now‑pay‑later products, which may carry higher effective costs or weaker protections.

Evidence from moderate caps

• Mid‑range caps often look more promising. One academic analysis finds that caps of 18 or 15 percent could cut aggregate interest by tens of billions annually without materially reducing card lending volumes or forcing large cuts to rewards, suggesting scope for consumer gains when caps are set above average risk‑adjusted funding costs.​

• 36 percent as a cross‑product standard. For small‑dollar loans, a 36 percent ceiling has been adopted or endorsed in many U.S. jurisdictions and federal contexts (e.g., for servicemembers), with research arguing that it meaningfully improves affordability while still allowing viable lending, although some state‑level experience (e.g., Illinois) shows measurable reductions in availability for the riskiest borrowers.

How design choices matter

• Level and formula of the cap. Outcomes differ significantly between a hard 10 percent ceiling (often below current average card APRs) versus a higher or margin‑based cap that floats above a benchmark rate; proposals that tie caps to the federal funds rate and give regulators power to adjust in recessions aim to avoid supply shocks while still limiting outliers.

• Scope and accompanying reforms. Whether the cap covers fees as well as interest, applies to business cards, and is paired with limits on “junk fees” or stronger underwriting rules affects whether issuers respond mainly by shrinking credit, raising non‑interest charges, or re‑engineering products.

For the types of caps you are most focused on (e.g., a 10 percent national ceiling vs something like a 15–18 percent or 36 percent standard across products), what consumer groups or market segments are you most concerned about: mass‑market prime revolvers, subprime cardholders, or small‑dollar borrowers more broadly?