President Trump recently floated the idea of imposing a one-year cap on credit card interest rates at 10 President Trump recently floated the idea of imposing a one-year cap on credit card interest rates at 10 percent. Given that Americans currently hold more than $1.2 trillion in credit card debt—and face average interest rates north of 20 percent—the proposal has obvious surface appeal.
But as Market Institute Senior Fellow Norm Singleton explains in a recent piece for RealClearMarkets, capping interest rates is a classic example of a government “solution” that misunderstands how credit markets actually work—and ends up harming the very people it is meant to help.
High interest rates on credit cards are not arbitrary. They reflect risk. Borrowers who consistently carry balances or miss payments pose a greater likelihood of default, and lenders price that risk accordingly. When government steps in and artificially caps interest rates, it doesn’t make that risk disappear—it simply makes lending to higher-risk borrowers unviable.
“The only people paying 20 percent or more interest are those who don’t pay off their balances. That rate reflects the risk lenders take when extending credit to borrowers who may not repay it.”
Singleton notes that while some consumers responsibly carry short-term balances for large purchases or emergencies, sustained nonpayment changes the risk profile entirely. A government-imposed cap would prevent lenders from pricing that risk accurately—leading them to deny credit altogether to lower-income or lower-credit borrowers.
The likely result? Consumers shut out of mainstream credit markets will turn to alternatives that are far worse.
“If lenders can’t charge rates that reflect risk, they won’t extend credit. Those borrowers won’t stop needing money—they’ll turn to payday loans and other high-risk financial products with even harsher terms.”
Payday loans often come with triple-digit annualized interest rates and aggressive repayment schedules, trapping borrowers in cycles of debt that are far more difficult to escape than revolving credit card balances. In states where payday lending is restricted or banned, borrowers may be pushed toward informal or illegal lenders—introducing risks far beyond high interest rates.
Singleton also warns that these dynamics would ripple outward, increasing reliance on government assistance programs such as Medicaid and SNAP as households lose access to short-term credit for emergencies like car repairs or medical bills.
“Interest rate caps don’t reduce debt—they redirect it into more dangerous channels, while expanding dependence on government programs.”
While President Trump cannot impose an interest rate cap by executive order or social media post, congressional action remains a real possibility. Progressive lawmakers have long supported credit card rate caps, and political pressure could tempt Republicans to go along rather than risk accusations of siding with “big banks.”
But as Singleton reminds readers, economic reality doesn’t bend to political messaging.
“When government claims it is ‘here to help’ by controlling prices, history shows the result is less access, higher costs, and worse outcomes for consumers.”
Interest rate caps may sound compassionate—but they are a blunt instrument that distort markets, reduce access to credit, and ultimately leave struggling Americans worse off.
Read more at RealClearMarkets by clicking here.
