In late January, President Trump proposed a one-year 10% cap on credit card interest rates, echoing a longtime legislative ask of U.S. Senators Bernie Sanders and Elizabeth Warren. While Treasury Secretary Scott Bessent seems to have less definitive views on the subject, the president elevating this policy ask has sent a sizable wake of concern rippling across issuing banks, card networks, processors, co-brand partners, and fintech issuers, as well as into major sectors that depend on card-based payments, including travel and retail.
The stated intent of capping credit card interest rates is to ease the financial burden on cardholders facing interest rates cap advocates consider too high, but both theory and the repeated tests of history show it will accomplish something very different — to the extent it is a binding constraint (below what market competition would dictate) it will limit credit access, and even eliminate it for some of those most burdened by debt. As issuers seek to limit its adverse effects on them, it will also worsen other credit terms, such as reward programs, with further effects.
Delta Air Lines CEO Ed Bastian has warned that such a cap would “upend the industry” and disproportionately harm lower-income consumers by restricting access to credit. Delta’s co-branded American Express partnership generates billions of dollars annually, reported at roughly $8 billion in recent years, helping fund fleet investments, route expansion, and labor commitments. These co-branded cards are core payment instruments whose economics depend on a balance of interchange revenue, interest income, and risk-based pricing.
Cash back, airline miles, hotel points, airport lounge access and sign-up bonuses are sustained in large part by interest income from revolving balances. Interchange fees support transaction processing across card networks, but they are not sufficient on their own to finance today’s rewards-heavy card market. With charge-off rates already exceeding three percent in stable conditions and rising during downturns, a 10% interest rate cap would significantly impair card companies’ ability to finance such competitive rewards.
This is problematic for the payments industry because, for many companies, these loyalty programs have become core profit engines, in some cases more highly valued than the underlying travel or retail business they support. Reduced issuer margins would likely lead to lower rewards earning rates, higher annual fees, tighter eligibility, and scaled-back co-brand and network partnerships. Efforts to offset such revenue losses would also hurt the large number of customers who benefit from those programs.
The effects would be felt widely. Cash-back programs deliver meaningful savings on groceries, gas, and everyday spending. Small business owners rely on points and cash back to offset travel and operating costs, while middle-class families accumulate miles over years to fund vacations that would otherwise strain household budgets. Collectively, U.S. cardholders earn tens of billions of dollars in rewards value each year — a market-driven feature of the modern payments system that would be significantly eroded by imposing interest rate caps.
Credit card interest rates reflect borrower risk. Cardholders with excellent credit profiles, consistent on-time payments, and moderate utilization can routinely secure rates well below the national average. In contrast, those with subprime or near-prime histories — delinquencies, high debt loads, or thinner credit files — must pay more to reflect their higher risk of partial or complete default. The ability of the system to adjust interest rates for such risk is what has enabled issuing banks and fintech leaders to extend revolving credit at scale while keeping losses manageable.
A flat 10% cap severs that linkage. Issuers cannot realistically absorb substantially higher risk without additional compensation. For example, if the prime interest rate for the least risky borrowers was 6%, and a riskier borrower would have to pay a 5% premium to cover the added risk, a 10% interest rate cap would ration them out of the credit market altogether. The predictable result is a contraction in credit availability that is worse for those who are already the most burdened. And it will show up in multiple ways--stricter approval standards, reduced credit limits and fewer options for borrowers whose risk profiles can no longer be priced accurately. Subprime and near-prime borrowers — the very populations often cited in affordability debates--would face the sharpest pullback. What started as a “consumer protection” produces a “consumer punishment” result.
Past policies highlight this tendency for price controls to produce the opposite of intended consequences in the financial field as in other areas. Consider the Durbin Amendment of 2011, which capped debit interchange fees. Backers asserted savings would flow to merchants and thus to consumers through lower prices. Consumers saw little evidence of lower retail prices, however. Instead, they lost valuable banking benefits. Federal Reserve analyses found that bank fees increased, minimum balance requirements rose, debit rewards programs disappeared, and no-fee checking accounts declined significantly.
A closer parallel can be seen in the State of Illinois’s implementation of a 36% interest-rate cap on certain consumer loans. After enactment, lenders exited the market, origination volumes dropped sharply, and many borrowers turned to costlier payday alternatives or unregulated channels. Credit did not become more affordable; for higher-risk borrowers, it simply became harder to obtain.
Again and again, where interest rates are constrained below levels needed to cover expected losses, fraud prevention, compliance, and operating costs, lenders reduce risk exposure. Consumers bear the consequences through fewer options and tighter standards. For the payments ecosystem, that means fewer active cardholders, lower transaction volumes, and weakened network economics, ultimately harming consumers and merchants alike.
Framed as immediate relief, the interest rate cap risks producing the opposite result: reduced credit availability for those who need flexibility most, coupled with the dismantling of a rewards system that stretches household dollars across income levels.
Price controls in risk-sensitive markets have a long record of unintended adverse consequences worsened scarcity, diminished benefits, and migration toward less-regulated alternatives. A 10% cap on credit card interest rates would follow the same path.
Markets have consistently outperformed blunt regulatory ceilings in allocating credit risk, expanding access, and fostering innovation. This proposal risks relearning that lesson at significant cost to the payments industry and the consumers and businesses it services.
Gary Galles is Professor of Economics at Pepperdine University
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