History Shows Trump’s Proposed Credit Price Controls Won’t Help Affordability

In the midst of various challenges facing the nation, including concerns about affordability, the Trump administration is reengaging with populist consumer finance proposals that surfaced during the president’s 2024 campaign. This includes recent calls for a 50-year mortgage option, proposed tariff dividend checks, an executive order aimed at limiting institutional investment in single-family homes, increasing federal purchases of mortgage loans, and credit price controls.

Recently, President Donald J. Trump signaled his support for two populist credit price controls: capping credit card interest rates at 10 percent for one year and supporting the Credit Card Competition Act, a piece of legislation that would create a backdoor to price controls on credit card processing.

Any introductory economics class explains the harms of price caps—the most obvious being that they create shortages. If these caps are implemented, millions of Americans would lose access to credit, with disproportionate effects on riskier borrowers. Moreover, fees would likely increase in other areas to offset the losses for customers the card issuers and their partner banks could still afford to serve.

Given that these failed policies are resurfacing, it is worth examining the outcomes of some earlier attempts to enact price controls in the United States.

Nixon’s 1971 Price Controls

Inflation was around 6 percent in the late 1960s and into the 1970s due to wartime spending, Great Society programs, and loose monetary policy enacted under President Lyndon B. Johnson. But after decades of similarly low rates, inflation became a potential liability during President Richard M. Nixon’s first term. During his 1971 campaign, Nixon announced he would temporarily freeze all prices and wages throughout the United States and declared himself a Keynesian. Initially very popular, the plan helped him carry 49 of 50 states to win reelection.

The ultimate effect was predictably disastrous, fueling the fires of double-digit inflation, decreased productivity and innovation, empty supermarket shelves, and other major economic issues. By the time the controls were lifted, inflation had doubled to 12 percent, and Nixon had resigned following the Watergate scandal. The Nixon price controls are now widely viewed as one of the greatest macroeconomic blunders in American history.

Carter’s 1980s Credit Caps

In March 1980, hoping to tackle the double-digit inflation spurred by Nixon’s Keynesian policies, President Jimmy Carter used the Credit Control Act of 1969 to implement temporary caps on lending. Inflation was 14.8 percent at the time—the highest in the post-World War II era. In fact, the period spanning 1965 to 1982 was dubbed “The Great Inflation.”

Through the Federal Reserve and with the authority of the Credit Control Act, Carter enacted limits on credit card usage, placed restrictions on installment loans, discouraged borrowing, and implemented higher reserve requirements for lenders. This was explicitly designed to stall consumer spending in order to reduce inflation by lowering demand; however, the effects were so rapid and intense that the caps were abandoned just four months later. Instead of gently lowering inflation as intended, the caps choked off credit access, artificially depressing spending and launching the country into a recession. Carter ultimately lost his bid for reelection, in part due to these wildly unpopular and short-lived credit price controls.

Debit Interchange

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act following the 2008 financial crisis. Among myriad new regulations, the bill implemented debit interchange price caps through the Durbin Amendment. These price controls were meant to result in fee savings for consumers, under the assumption that retailers would pass on the savings. Instead, only some retailers lowered their prices—and 22 percent even raised them. Perhaps more importantly, the amendment effectively eliminated debit rewards programs and reduced access to free and low-fee checking for millions of Americans. The Durbin Amendment is still in effect today and managed by the Federal Reserve through Regulation II, though attempts to undo it are ongoing.

Conclusion

Federal price controls have been proposed in the United States on several occasions, often to advance political priorities. While they tend to have broad appeal before implementation, long-term results show economically and politically disastrous downstream effects. The Trump administration should look to history before attempting credit price controls, lest it repeat past errors.