Trump’s Plan to Cap Credit Card Interest Rates Won’t Fix Affordability Issues
President Donald J. Trump has called for a temporary cap of 10 percent on credit card interest rates in an apparent attempt to tackle widespread concerns about affordability. While the move may seem out of the ordinary for a Republican president, it follows a promise made on the campaign trail in 2024 and aligns with other economically populist proposals from Trump.
The president wants the cap implemented on Jan. 20, 2026, although no method exists to implement or enforce the proposal without an act of Congress. Recent comments from Republican congressional leaders make it clear that this is unlikely, despite bipartisan legislation on the issue spearheaded by Sens. Josh Hawley (R-Mo.) and Bernie Sanders (I-Vt.). The legislation (previously covered in this R Street piece) has not advanced despite attempts to attach it to other bills.
Although its stated intention is to increase affordability—a top-of-mind issue for most Americans—the proposed cap would only exacerbate financial woes. It is vital to understand that credit card interest rates are set based on a “risk-based” pricing system, which offsets the risk of lending should the borrower default. In this system, individuals with a high credit score and good borrowing history receive lower interest rates while those with a lower credit score and poor borrowing history receive higher rates that reflect their risk. This is especially important with credit cards, which do not hold collateral like auto loans or home loans, and it sheds light on why credit card interest rates are so much higher than secured debt instruments.
If these prices are capped, banks and credit unions could no longer afford to lend to those deemed less creditworthy—thereby eliminating access to credit for millions of Americans. Some may argue that decreasing the amount of credit available to lower-income Americans is a good thing, as evidenced by large credit card balances. But in an economically free society (like the one Republicans have long advocated for), we must recognize that some people might use that freedom to make poor choices. We should not craft policy around individuals who make poor decisions at the expense of those who use financial tools to better themselves and their financial well-being.
Additionally, capping interest rates only reinforces poor financial habits—especially when the action is temporary, as the president has suggested. When the penalty for payments not made in full is reduced, it only heightens the impulse to repeat the behavior. This means that despite an attempt to allow Americans to “catch up” on their credit card bills, many would be more likely to pay back more slowly when rates are lower. If the cap is later reversed (like the pause on student loan repayment during the COVID-19 era), the situation could become disastrous. Further, it would harm borrowers who pay in full and on time, likely hitting them with reduced credit card offerings and perks and perhaps even raising fees elsewhere.
Curiously, this move is in diametric opposition to the Trump administration’s efforts to dismantle Biden-era Consumer Financial Protection Bureau rules capping credit card late fees. This lack of ideological consistency signals that Trump’s idea may have lacked a thorough thought process—or much input from key economic advisors. As Speaker of the House Mike Johnson said, “I wouldn’t get too spun up about ideas that are out of the box.”