With the recent midterm elections, the balance of power in Washington is very quickly changing. Given the extent to which things shifted left, Democrats certainly want to be able to show that they can accomplish something in the next two years, to make life better for average Americans.
Along those lines, we’re once again seeing a proposal floated regarding capping credit card interest rates. There’s a lot more support for this than in the past, given the majority that Democrats have, plus the fact that President Trump has also been in support of this concept (or at least claimed to be). Will it actually pass, though?
Democrats (and Trump?) want to cap credit card interest rates
Senate Democrats are renewing a proposal to cap credit card interest rates at 10%, with Elizabeth Warren of Massachusetts specifically bringing this up in a “Face The Nation” interview. Warren is likely to chair the Senate Banking Committee, and could use her position to help advance the proposal.
Now, before anyone gets political, keep in mind that this is a concept that Trump actually proposed earlier this year. He claimed that Americans were being ripped off by credit card companies, and that as of January 20, 2026, credit card interest rates should be capped at 10%. However, this just came in the form of a social media post, rather than any actual legislation:
Please be informed that we will no longer let the American Public be “ripped off” by Credit Card Companies that are charging Interest Rates of 20 to 30%, and even more, which festered unimpeded during the Sleepy Joe Biden Administration. AFFORDABILITY! Effective January 20, 2026, I, as President of the United States, am calling for a one year cap on Credit Card Interest Rates of 10%. Coincidentally, the January 20th date will coincide with the one year anniversary of the historic and very successful Trump Administration. Thank you for your attention to this matter. MAKE AMERICA GREAT AGAIN! PRESIDENT DONALD J. TRUMP
Unsurprisingly, there was no enforcement mechanism, and this never happened, especially since he got pushback from other Republicans. If he really believed in that proposal, then it sounds like this will be his chance to actually turn it into some sort of a law, with support from Democrats. We’ll have to mark this as “developing” for now.
Capping credit card interest rates is a double edged sword
Just for some context, credit card issuers make money in three primary ways — through interchange fees, through interest charges, and through annual fees. When it comes to interest rates, credit card companies are known for having very high rates, an average of over 20%. These are the charges that apply if you don’t pay your full balance before the payment due date. You don’t pay interest charges if you simply charge your purchase to a credit card, and then pay your balance in full.
On the surface, capping credit card interest rates of course sounds great — some of the rates are really high, and many people view banks as greedy, and think they can afford to give up some of their margins. Obviously for those who are currently financing charges, a cap on interest rates would be positive.
The thing is, a policy change like this wouldn’t come without some other changes. There’s no denying that if interest rates were capped at 10%, lots of consumers with not-great credit would be locked out of getting credit cards, and might even have their accounts closed, because card issuers would find it too risky to loan them money at that rate.
After all, there’s a huge risk to people not making payments, and the economics of that work differently with 10% interest rates rather than 25% interest rates. I would imagine that tens of millions of Americans would have their accounts closed, that we’d see fewer no annual fee cards, etc.
Beyond that, if we did see a long term cap on credit card interest rates, it would likely change the credit card landscape in terms of how rewarding cards are, with everything ranging from welcome bonuses, to rewards on spending, to perks.
Right or wrong, credit card economics are heavily reliant on a cross-subsidized system. That’s the whole reason some of us are able to get such outsized value. Credit card rewards structures nowadays largely more or less rebate back interchange fees to consumers, as it’s easy to earn 2% cash back with cards, or even to earn huge multipliers on spending.
The reality is that the revenue that subsidizes a lot of rewards is the interest charges, since that’s the highest margin revenue stream from many card issuers. So we’re partly earning huge welcome bonuses and 5x points on some transactions because someone else is paying close to 30% interest.
I’m not saying that’s a good system, but I’m just being realistic about how it works. If interest rates are forced to be slashed by more than half in the long run, it will have major implications for rewards. Maybe that’s objectively not a bad thing, but it will happen.
For that matter, it would even have a major impact on airlines — they’re so reliant on credit card revenue nowadays to turn profits, and this would greatly hurt their margins in that area as well.
Bottom line
With Democrats soon controlling both the House and Senate, there’s a renewed push to cap credit card interest rates at 10%. This is a proposal that Trump made earlier this year, but it didn’t get support from Republicans.
While I totally appreciate that credit card interest rates are often incredibly high, it’s not without reason, given the rate of default on some cards. Approval standards for cards would change, many consumers would have their cards shut down, etc. It would also likely change the economics of the credit card industry, which could even impact airlines.
However, I’m not some lobbyist or apologist for the credit card industry. If the change happens, many people will benefit, and I’m sure the industry will adapt. However, unarguably many people will go from paying 25% interest on their credit card, to potentially paying even higher rates for payday loans, doing business with loan sharks, etc.
What do you make of this proposal to cap credit card interest rates?
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