New polling indicates that a significant majority of Americans are not just skeptical of capping interest rates on credit cards, but they oppose it.

This comes as President Trump has proposed limiting the interest rate that credit card companies can place on credit cards to 10% for one year in an effort to make life a bit more affordable for Americans.

The president is right to focus on delivering relief to hardworking men and women. However, this policy would do more harm than good, and Americans understand this.

What’s Happening 

Morning Consult conducted a poll, commissioned by the Consumer Bankers Association, to gauge Americans’ views on the recent proposal to cap interest rates at 10% for one year. Apparently, this populist idea is not as popular once people understand its impact on them.

Here are a few key takeaways:

A solid majority of adults know that a 10% cap on credit card interest rates will force banks to take negative actions for consumers:

  • 61% expect new fees
  • 60% think fewer people will be approved for credit cards 
  • 58% believe credit limits on credit cards would be reduced 
  • 53% expect credit cards will be cancelled for cardholders with lower scores
  • 54% worry that rewards programs will be eliminated 

Americans understand that the unintended consequences of this proposal would be felt by many different types of consumers, from the least creditworthy to the most.

The largest share of respondents were concerned for people who rely on credit cards for emergencies (67%), followed by low-income individuals (64%). Tied for third place were young adults and small business holders (62%). 

Nearly two out of three adults understand that new fees will likely be a consequence of limiting interest. New fees for cardholders undercut the goals of providing financial relief from credit card debt.

Respondents were particularly upset that responsible credit card holders would be punished.

This was a common sentiment expressed:
I would be very upset. I pay off my credit cards monthly and do not carry any balance. I rely on the benefits I get for paying off my credit cards. People must learn how to control their spending and saving.

Conservative voters expressed even stronger antipathy to this proposal.

What This Means

Capping interest rates on credit cards is not a new idea. Far-left policymakers Senators Bernie Sanders, Elizabeth Warren, and Representative Alexandria Ocasio-Cortez have championed the idea for many years. They are operating on the faulty premise that big companies will simply eat the costs.

Credit lenders and credit card companies charge interest rates to cover the costs and risks of offering credit. When that interest rate is capped, they have to recoup the costs through other means, such as fees, limiting access to credit, or eliminating other perks for cardholders, such as rewards programs and air travel miles.

My colleague Aubrey Wursten explained this recently in a blog last week examining data on decades of failed rate caps in the U.S.:

Laws to cap interest rates emerge frequently, and an executive order limiting credit card interest to 10% annual percentage rate (APR) is on the docket. To central planners, this ceiling seems an obvious way to relieve lendees from snowballing debt.

In reality, although lopping off the top of the iceberg looks like success, supporters cannot spare an economic ship from a crash this way. Both theory and history indicate legislative rate manipulation exacerbates credit crises, especially for the most vulnerable.

…

Credit is a sellable good like any other. If a customer is willing and able, at most, to afford 20%, and the lender is willing and able, at least, to keep it to 20%, they have agreed on a price. This agreement must extend to penalties, fees, and other measures used to clinch the business deal, and any outside force will drive one or both parties out of both this business agreement and those in the future. Sadly, many businesses on both sides never recover, as evidenced in the aftermath of the Depression. The same promises to be the consequence if current caps become law.

Bottom Line

Americans understand that policies may be well-intentioned, but still result in bad outcomes, especially for those who were meant to be helped. Interest rate caps are a perennial idea that fails more than it succeeds in helping the least.

Engineering market rates interfere with price signals that are derived by accounting for the many factors that determine how much to charge for loaning someone credit.

As Aubrey noted, “The free market rate is the one and only real “magic” rate, and politicians cannot codify it into law.”