Originally published at realclearmarkets.com January 15, 2025.
Affordability has become the defining economic issue of the moment. Headline inflation hovers around 3 percent year-over-year, yet prices for essential categories such as housing and rent continue to rise faster than wages. Mortgage costs for homeowners have surpassed $2,000, and rents have climbed to nearly $1,500. Home prices remain far above pre-pandemic levels, up 80 percent since 2017. Vehicles are increasingly expensive: the average new car now costs about $50,000. The total U.S. household debt to finance it all has swelled to an all-time high of $18.6 trillion.
Against this backdrop, President Donald Trump has proposed a national 10 percent cap on credit card interest rates, framing it as a bold strike against corporate greed and a gift to struggling Americans. It is easy to see the appeal. Credit card rates are high. Families feel squeezed. Someone, finally, is promising relief.
Originally published at realclearmarkets.com January 15, 2025.
But interest rate caps are price controls. While price controls are not exclusively socialist, they are a central feature of communist and command economies and are generally viewed as incompatible with free-market capitalism. Whether imposed on rent, food, energy, or credit, price controls do not solve shortages. They create them.
They always have. They always will.
Credit markets are not exempt from economic gravity. An interest rate is not merely a price; it is a risk signal reflecting repayment probability, income volatility, credit history, and uncertainty. When the government caps that signal, lenders do not altruistically absorb the loss. They adapt. They ration. They retreat.
We already know how this story ends because we have the data.
A recent study from the Federal Reserve Bank of New York examined the effects of state-level interest rate caps across multiple jurisdictions. The findings were stark. When price controls were imposed on consumer credit, access fell sharply for high-risk borrowers. Credit did not disappear; it was reallocated upward toward wealthier, safer households.
Prime households gained. Subprime households lost. Delinquency rates did not meaningfully improve. Financial distress did not abate. The policy did not protect the vulnerable. It consolidated credit with those who already had it.
That is not a problem with interest rate caps. It is their defining feature.
A 10 percent national cap on credit card interest rates would trigger the same dynamics, only on a vastly larger scale. Credit card issuers would not simply lower rates and carry on. They would tighten underwriting standards, slash credit limits, eliminate rewards programs, and close accounts deemed marginal. Entire segments of the population would quietly lose access because they no longer fit within an artificially compressed risk model.
The result would be a credit contraction.
Trump’s proposal is further shielded by a familiar political fiction: that the cap would be “temporary.” History suggests otherwise. As Milton Friedman famously observed, “Nothing is so permanent as a temporary government program.” Once imposed, price controls marketed as consumer relief become politically radioactive to remove. Lifting them is framed not as restoring market function, but as raising prices on struggling families.
Markets, however, do not behave as if price controls are temporary. Lenders price risk and allocate capital based on expectations. Even a short-term cap would prompt issuers to reprice portfolios, exit marginal markets, and redesign products in ways that are difficult to reverse. Credit lines once withdrawn are not automatically restored. Consumers pushed out do not simply reappear when the calendar flips.
Credit cards are not a niche product; they are core market infrastructure. More than 800 million cards are in circulation, and roughly one-third of U.S. payment transactions run through them. Nearly 70 percent of purchases now occur online. For businesses, credit cards enable travel, inventory purchases, and cash-flow management. For consumers, they remain the fastest, most secure, and most widely accepted payment tool in a digital economy.
Just as important, credit cards function as financial shock absorbers in an increasingly volatile economy. Total U.S. credit card debt now exceeds $1.1 trillion. Consumers cite fraud protection, speed, rewards, and credit-building as key benefits. Fewer than half of cardholders carry balances, but for those who do, credit cards provide flexibility when timing fails.
Price controls do not eliminate harm. They redistribute it.
A credit card cap would force an exit from markets, from products, and from consumers deemed too risky under a blunt national rule. The households most likely to be cut loose are those with thin credit files, volatile incomes, medical debt, or past disruptions. The households least affected are those with stable wages, assets, and pristine credit histories.
The equity implications are obvious. The beneficiaries of price controls are the already-secure. The casualties are those navigating uncertainty.
That is why interest rate caps function more like credit gatekeeping than consumer protection. They determine who remains eligible for lawful, transparent financial tools and who is pushed entirely outside the system. They narrow pathways back to credit. They freeze mobility. They convert temporary hardship into permanent exclusion.
And they do all of this while wearing the language of fairness.
President Trump’s proposal is especially dangerous because of its scale. State-level caps distort local markets. A national credit card cap would distort the entire consumer credit system. It would accelerate consolidation, reduce competition, and harden the divide between those who can borrow cheaply and those who cannot borrow at all.
William Shakespeare warned that when leaders “cry havoc,” they unleash forces they cannot control. A national price control on credit would do precisely that: turn a genuine concern about affordability into a quiet war on access, dignity, and independence.
Interest rate caps redistribute credit, with the flow in one direction: upward.
And in a moment when Americans need more flexibility, more choice, and more pathways forward, the last thing the country needs is another policy that promises help while locking out the people most in need.