Americans are drowning in credit card debt, but President Donald Trump’s suggestion to cap interest rates at 10% for one year is not a particularly good solution.
On its face, it sounds great. Americans largely hate banks and Trump’s suggestion gives the Robinhoodish illusion of robbing the rich to give to the poor. Lowering a borrower’s interest rate by half or two thirds would certainly alleviate some pressure.
But there’s a reason JPMorgan Chase CEO Jamie Dimon said Trump’s plan would be an “an economic disaster.” Dimon is a banker, so we’d expect him to say that. But it doesn’t mean he’s wrong.
Current borrowers might enjoy temporary savings, but they would also still be mired in debt. Future borrowers would find themselves unable to get credit – a huge economic loss.
But are rates the problem or merely a symptom?
Rates are largely irrelevant for those who don’t carry balances for long, so maybe the problem is more fundamental.
Is it that the cost of living grew much faster than income? Are households not saving enough? Do consumers not appreciate the effect of interest rates on debt or even what their interest rates are? Are people plagued with emergencies and hard luck? Or are too many people living beyond their means?
We don’t have definitive answers to these questions, since every individual has a different financial situation. But the policy would end up doing more harm than good.
Debt crisis
There was approximately $1.2 trillion in total credit card debt in Q3 of 2025, which was a 6.14% increase from the previous year. That comes to an average of nearly $6,000 per cardholder.
This is particularly important considering half of households have less than $8,000 in savings and only 46% of adults have enough savings to cover three months of household expenses.
Studies show that people are carrying debt on their credit cards for all sorts of purchases, like car repairs, vacations and medical bills.
But by far the largest category of expenditures causing debt is day-to-day expenses. This suggests that a plurality of people is struggling to get by.
At least 21% of those with credit card debt report they’ve had it for five or more years. The sad truth is that when consumers start carrying a balance on their credit cards and pay an average rate of around 20% (some lower, some much higher), the debt builds quickly and becomes difficult to escape.
Profits
Like most soak-the-rich proposals, Trump and others who support the concept – Bernie Sanders and Alexandria Ocasio-Cortez – are building on the populist assumption that credit card companies make a huge profit on the backs of consumers and therefore can afford to lower their rates.
And while credit cards are often highly profitable, this back-of-the-napkin analysis completely overlooks the risk-based pricing business model.
In 2024, credit card companies saw approximately $160 billion in revenue (not profit) from interest charges and an estimated $187 billion in swipe fees, which are their two main sources of revenue.
That sounds like a lot, but there’s a fair amount of risk involved too. In 2024, companies lost more than $60 billion to charge offs (when it’s determined the borrow will never pay) – the highest since 2011.
Credit cards are priced to allow for this risk and artificial caps on interest rates would likely lead to companies managing this risk by denying credit to borrowers considered higher risk.
Price controls are bad
Price controls are generally considered bad economic policy because they misallocate resources, lead to shortages and, among other things, force consumers to turn to significantly worse options, like predatory lenders and even the black market.
Chile tried lowered the maximum interest rate on unsecured loans from 53.9% to 36.9% a few years back and one study found that the law reduced access to loans by 9.7%, with losses particularly pronounced “among the young, the less educated and the poorest families.”
Illinois lawmakers tried imposing a 36% interest rate cap a few years ago, which researchers estimated reduced the number of loans to subprime borrowers (those with credit scores of around 620 or less) by 38%. Ironically, the policy increased the number of loans made to people with good credit by 7%.
And when Japan tried tightened interest rate caps, consumer loan acceptances dropped by two-thirds in two years, according to the Mercatus Center – triggering a rise in illegal loan sharking.
Limited help
Cutting interest rates would help a lot of people, in theory. But people would still be to escape the debt unless they increased monthly payments.
Remember when student loan payments were paused during COVID? Sure, people who were out of work were relieved, but many people found themselves worse off when payments resumed.
The most disastrous impact of this policy is that it would hurt access to credit for young, working class, or lower-income borrowers. Absent credit, they may forgo emergency purchases such as essential car repairs or medical treatment or seek loans from lenders with even harsher terms.
Capping rates would not address any of the fundamental cost of living issues contributing to the credit card debt crisis, nor would it alter consumer spending habits.
Instead of rate caps, Trump could consider interest rate training for borrowers, like the ones borrowers receive when taking out student loans. These courses are annoying, but they give borrowers a picture of what to expect.
Trump could also promote good habits, like saving more cash or delaying non-essential purchases. He could look for ways to reduce the cost of living, like reducing tariffs. Or he could work with Congress to set a better example when it comes to budgeting and debt. If a budget is a statement of values, then it’s clear the federal government values irresponsible budgeting.
Heck, Trump could invite some of the top banking executives in the country to the White House to come up with a strategy to help alleviate the credit card debt crisis.
Just about anything would be better than a rate cap.
Matt Fleming, MBA, is Pacific Research Institute’s Communications Director.
