A proposed 10% cap on credit card interest rates would harm consumers by making credit less accessible and have negative consequences for businesses of all sizes, the Washington Post and Wall Street Journal wrote in separate editorials this week.
President Trump on Monday proposed imposing a one-year 10% cap starting Jan. 20. He did not say whether he intends to implement the cap through executive action or if he expects Congress to pass legislation to make it effective. Sens. Bernie Sanders (I-Vt.) and Josh Harley (R-Mo.) previously introduced legislation to create a cap, and a related bill has been introduced in the House.
In its editorial, the Washington Post said compliance with the cap would be impossible. “There is simply no way to offer short-term, unsecured credit to the vast majority of people at interest rates as low as 10%,” it said. “Interest rates reflect the risk that lenders take on when making a loan. Higher risk means higher rates.”
The Wall Street Journal pointed to research that found that lenders restricted credit in Arkansas and Illinois after both capped interest rates. “When lower-income Americans are regulated out of the card market, they may turn to payday loans that charge even higher rates,” it said.
Both editorial boards said the cap would ultimately harm low-income Americans and have larger repercussions for the U.S. economy.
“Retailers, which are among the country’s largest employers, would be crippled by declining purchase volume,” according to the Washington Post. “Some airlines and hotels, which rely on affinity card deals for huge shares of their revenue, could go bankrupt. A giant shock to the banking system would hurt an untold number of small businesses in unforeseen ways.”
