Interest Rate Cap on Credit Cards Could Cause 100 Million To Lose Their Accounts

There’s a famous scene in the movie “The Graduate” in which a young Dustin Hoffman receives this one-word bit of career advice from a businessman: “plastics.”He wasn’t talking about credit cards, but he might as well have been. Back in the 1960s only about half of Americans had credit cards. Today about 90 percent of us do. It’s what I call the democratization of credit.This revolution in the way we pay for things benefits everyone: shoppers, retailers, online companies, banks, recordkeepers and so on.It’s no exaggeration to say that credit cards are the grease that makes the great American economic engine run smoothly.Today we increasingly tap our phones at checkout lines rather than swipe a plastic card. All told, one of every three consumer purchases today is made with a credit card. I’ve noticed lately that stores now have signs that read, “Sorry, we don’t take cash.”Yet now some politicians in Washington won’t leave well enough alone. In order to make things “more affordable,” they want to impose price controls on how much credit card companies charge merchants. Even worse, they want to put an interest rate cap of 10 percent on late credit card payments.I understand the impulse of lowering interest penalties. Americans are still feeling the sting of the Biden inflation years and now higher energy prices due to the Iran conflict.Yet good intentions cannot override the laws of economics. In a recent analysis conducted for Unleash Prosperity Now — based on rigorous research and a sweeping industry survey covering roughly 75 percent of the American credit card market — we found a 10 percent rate cap would not lower costs for consumers. It would eliminate access to credit for tens of millions of them.A 10 percent interest rate cap would result in more than half of all open credit card accounts being closed or having their credit lines drastically reduced. We’re talking about more than 100 million cardholders losing easy access to credit.Especially vulnerable are the one-third of lower-income American adults with subprime or near-prime credit scores — especially younger workers, people rebuilding after a financial setback, or those who temporarily lose a job.For many of these families, a credit card isn’t a luxury. It’s how they cover a car repair, a medical bill or groceries at the end of a tight month. The Federal Reserve’s own data shows that 37 percent of American adults couldn’t cover a $400 emergency expense from savings alone. A credit card is their safety net.And it’s not just subprime borrowers who’d get hurt. Our study finds that many prime borrowers who use their cards responsibly would see their lines of credit cut under a 10 percent cap.Our study found that when Illinois imposed interest rate caps in 2021, access to credit cards for low-credit-rate households fell by more than one-third.Even the “compromise” position of a 15 percent-to-20 percent rate cap is problematic. Our study finds millions of families would lose credit card access or face lower credit limits, especially because interest rates have edged upward as of late.What is needed is better financial literacy in America. Credit cards aren’t meant for a “buy now, pay later” mentality. (Who do we think we are? The federal government?) The high fees are meant as a deterrent to running up unpaid bills. The credit card companies mostly LOSE money when bills aren’t paid on time.There’s an old saying: If something isn’t broken, don’t fix it. Let the market work. There’s plenty of free-market competition here: four major credit card companies, and scores of banks issuing them. Let the market decide, and let the politicians deal with their own unpaid bills: the $40 trillion national debt.Creators.com

Interest Rate Cap on Credit Cards Could Cause 100 Million To Lose Their Accounts

More from the New York Sun

Israel and Lebanon Coordinate Aid Convoy to Christian Villages in Combat Zone

Emerging Claim That Targeting Civilian Infrastructure Is a War Crime Proves a Bridge Too Far

Stanford Calls Bluff on Students Using Jain Faith To Dodge Meal Plan

More from the New York Sun

Israel and Lebanon Coordinate Aid Convoy to Christian Villages in Combat Zone

Emerging Claim That Targeting Civilian Infrastructure Is a War Crime Proves a Bridge Too Far

Stanford Calls Bluff on Students Using Jain Faith To Dodge Meal Plan

South Florida GOP Congresswoman’s Immigration Reform Bill Sparks Backlash From Colleagues, Conservative Commentariat

Middle-Class Americans Prove the Biggest Winners From Trump’s Tax Cuts in the Big Beautiful Bill

In a Funeral for Economic Liberty, the Casket Cartel Seeks To Bury the Competition

The Double Tragedy of the Jewish Bund

Borrowing a Page From El Salvador’s Bukele, Ecuadoran President Welcomes American Troops To Assist With His Drug Gang Crackdown