President Trump recently announced efforts to cap interest rates for credit cards at 10%, effective January 20. Citing “affordability” in his Truth Social post, President Trump’s efforts to lower interest rates are well-intentioned. However, evidence shows that a cap on interest rates has the opposite effect.
Interest rates are what credit card companies charge in exchange for using their services and credit. They advance funds to use how you see fit—i.e., to pay for gas, airfare, etc.—and if you fail to pay the funds back by a certain time, you are charged interest.
This interest is the price for borrowing money, and credit card companies charge higher interest rates depending on the availability of credit in the credit market. If there is more credit available in the market, then interest rates for credit cards may be lower. If there is less credit available and more people are using credit, then interest rates may be higher.
Credit card interest rates fluctuate as a function of the supply of credit, in the same way that housing prices fluctuate based on the supply of housing. The interest charged to individuals also depends on their creditworthiness and ability to repay. Individuals considered riskier typically qualify for higher interest rates.
So, placing a cap on credit card interest rates below the market price for credit would have a similar effect to placing a price cap on housing. This is a price control that ultimately results in a shortage. Interest rates, like all prices, act as a signal about the amount of credit available and allow consumers to decide whether they value the advance funds enough to pay that interest rate. If there is an artificially low interest rate imposed by the government (i.e., a credit card interest rate cap), then more people will demand credit at that interest rate than is available.
Credit card companies may decide not to lend to high-risk borrowers or offer fewer rewards for using their cards due to interest rate caps. Similar outcomes resulted in states like Colorado and Illinois that instituted rate caps. High-risk borrowers—particularly minorities, women, and low-income people—struggled to improve their financial lives after these laws took effect.
Over 40% of American households rely on credit cards to pay their bills. As of November, consumers hold $1.2 trillion in revolving credit. This is up $18 billion over October 2025. As more consumers are relying on credit to finance their lifestyles, capping interest rates would drastically change how many Americans, especially the most vulnerable, live and limit their access to credit.
Bottom Line
While compassion for those suffering in debt is noble, basic economic principles still prevail. Interest rates still act as prices, and price controls lead to shortages and a lack of access. Instead of capping credit card interest rates, we must look at how to make the cost of living truly affordable instead of artificially limiting prices and hampering the market.