Florida Congresswoman Anna Paulina Luna and New York Democrat Alexandria Ocasio-Cortez have teamed up to co-sponsor a bill that would limit credit card interest rates to 10 percent.

“I’m proud to be the bipartisan co-lead to this legislation. For too long, credit card companies have abused working class Americans with absurd interest rates, trapping them in an almost insurmountable amount of debt. We need a fair solution – and that means getting rid of the status quo and putting a reasonable cap on interest rates,”said Representative Anna Paulina Luna.

“Credit cards with high interest rates regularly trap working people in endless cycles of debt. At a time when families are struggling to make ends meet, we cannot allow big banks to shake down our communities for profit. During his campaign, President Trump pledged to cap credit card interest rates at 10%. We’re making that pledge more than a talking point by introducing legislation to protect working people from remaining trapped under mountains of debt, said Rep. Alexandria Ocasio-Cortez.

This bill is similar to one introduced in the Senate by Missouri Republican Josh Hawley and Vermont Socialist Independent Bernie Sanders, which limits credit card interest to 10 percent, but only for five years.

As of the fourth quarter of 2024, Americans had credit card debt of $1.211 trillion. That is an increase from $1.166 trillion in the previous quarter and the highest since the New York Fed began keeping statistics on credit card debt in 1999. A little less than half of credit card holders carry a balance on their card, and the cost of doing that averages about 28 percent across card types. Interest rates fluctuate not only by the issuing bank but also by your credit score. A crappy credit rating can see that interest rate break 30 percent.

No one would argue that everyone with a credit card uses it wisely, but is mandating a maximum interest rate of 10 percent really doing anyone a favor? 

Credit card interest rates have never been at 10 percent since the Fed started tracking data on these instruments in 1994. Both sets of bill sponsors have correctly, but misleadingly, pointed out that credit card interest is much higher than the prime rate, but most credit card users are not prime rate material. Reducing the credit card interest rate would probably have the effect of "de-banking" a large share of US adults. 

In a letter submitted to Senators Sanders and Hawley, a coalition representing credit unions, community banks, and large and small financial institutions warned that an interest rate cap would likely restrict the supply of credit and drive consumers to less regulated credit providers, including pawn shops, auto title lenders, loan sharks, and payday loan companies. They noted, for example, that “payday lenders in Missouri charge annual interest rates of more than 300 percent,” far above the 22.8-percent APR for credit card accounts assessed interest. The letter cited Federal Reserve Board research that measured the effects of an all-in interest rate cap, which includes the APR and any associated fees, of 36 percent imposed by the state of Illinois and found that the “cap decreased the number of loans to subprime borrowers by 38 percent.” Furthermore, the same study found that the cap led to an increase of loans to prime borrowers by 16 percent. This study illustrates that the most financially vulnerable would bear the most harm.

There has been a concerted campaign in recent years to shut down sources of financing for those earning the least. Legislators have targeted payday and auto title lenders in numerous states without providing the people who use those lenders with any alternative. A 10 percent cap on interest doesn't mean anything to Americans who pay off their monthly credit card balance, but it would heavily impact those families who rely on credit cards for groceries, car repairs, etc. Their needs will not go away, but their source of financing will change from regulated to ad hoc and very unregulated lenders. We used to call them loansharks. The impact wouldn't be felt only by those with questionable credit ratings. Most Americans would probably lose their credit cards if a 10 percent cap on interest became law. The downstream impact of this on businesses would be just as painful as it would be to consumers.

Like so many well-meaning, nannyish ideas, this one rewards those who have and punishes those who don't. It is an idea that resonates with some in this populist time, but it is a cure much worse than the disease it hopes to cure.