The Great Credit Card Rate Cap Debate: Relief for Consumers or Risk to the Financial System?

In February 2025, lawmakers introduced a bipartisan bill proposing a 10% cap on credit card interest rates. The bill has sparked a heated debate in Washington, Wall Street, and Main Street. Senators Josh Hawley (R-MO) and Bernie Sanders (I-VT) are leading the legislation, aiming to fulfill a campaign promise by President Donald Trump and tackle rising consumer debt. Banks are concerned about potential risks to the financial system, while advocates argue for economic justice. The proposal raises important questions about consumer protection and market stability. This article gathers insights from lawmakers, industry leaders, economists, and advocacy groups to analyze the implications of this policy battle.

The Hawley-Sanders Bill: Key Provisions and Political Context?Once enacted, the bill proposes capping credit card interest rates at 10% APR for five years. This is a higher cap than earlier proposals: Hawley suggested an 18% cap in 2023, while Sanders pushed for 15% in 2019. President Trump supported the 10% threshold during his 2024 campaign, presenting it as a way to help “working Americans” with high credit card debt.?

Political Odd Bedfellows Hawley and Sanders, from different political backgrounds, both support rate caps because of the populist appeal. They criticized banks for charging high rates, with Sanders calling it “extortion and loan sharking.” Hawley pointed out that credit card interest rates have doubled since 2022, causing Americans to pay $105 billion in interest that year.?

Public Support vs. Legislative Hurdles In 2019, 84% of Americans supported interest rate caps, but now it’s 77%. The bill may struggle in Congress because of the strong influence of banking lobbyists. Jaret Seiberg, a policy analyst, believes the bill’s fate depends on inflation trends and Trump’s support. If prices remain steady, passing the legislation will be more challenging.?

The Case for Rate Caps: Relief or Mirage? Consumer Debt Crisis Record Balances: Over 75% of U.S. consumers carry credit card debt, with 12.9% paying only the minimum monthly amount—a figure that rose sharply in late 2024.? Sky-High Rates: The average credit card APR hit 24.26% in January 2025, with retail cards averaging 30%.? Proponents believe that capping at 10% would save households thousands per year. Sanders pointed out the difference between banks’ low borrowing costs and high consumer rates. He said, “Big banks are ripping off the American people.”?

Precedent and Public Sentiment The Military Lending Act (MLA), which caps rates at 36% for active-duty service members, demonstrates that federal rate limits can coexist with credit access. Federally chartered credit unions also operate under an 18% ceiling. “If we can protect soldiers and credit union members, why not all Americans?” asked Hawley.? High-Interest Partnerships’ Hypocrisy Critics highlight contradictions within the financial ecosystem. For instance, the Teamsters Union—whose president, Sean O’Brien, supports rate caps—partners with Capital One on a credit card charging up to 27.49% APR for “good” credit users. The union earned $1.28 million from Capital One in 2023.?

Industry Backlash: Warnings of Credit Crunches and Hidden Fees A Flawed Tool for Measuring Risk

Groups argue APR capsBanking groups believe APR caps overlook risk-based pricing in unsecured lending. Lindsey Johnson, CEO of the Consumer Bankers Association, emphasizes the need for banks to price loans based on individual borrower risk to ensure safety. The American Bankers Association warns that a 10% cap could prevent 60% of subprime borrowers from accessing credit.?

The Payday Loan Paradox: Banks caution that rate caps could push consumers toward predatory alternatives. Payday loans, which average 400% APR, thrive in states with strict usury laws. “This bill won’t eliminate high-cost credit—it’ll just drive it underground,” said Johnson.?

Fee Creep and Reward Cuts could speed Analysts caution that lenders may compensate for lost interest revenue by adding annual fees, reducing rewards, or imposing stricter terms. Chi Chi Wu from the National Consumer Law Center pointed out that even with zero interest, the product could still be very costly. The upcoming Capital One-Discover merger, set to form a major credit card company, might speed up these changes.?

The Broader Regulatory Landscape? The Capital One-Discover Merger: A Litmus Test?

The proposed $35 billion merger, expected to close in early 2025, would consolidate 22% of U.S. credit card loans under one roof. While proponents argue it would boost network competition (Discover operates its payment network), critics fear reduced consumer choice and higher fees. Jamie Grischkan, a financial regulation scholar, called the deal a “lightning rod” for antitrust scrutiny.?

The Credit Card Competition Act (CCCA) Senator Dick Durbin’s CCCA, which mandates dual-network processing for credit cards, seeks to lower interchange fees—a move that could undermine rewards programs funded by these fees. Though distinct from rate caps, the CCCA reflects growing bipartisan momentum to rein in card issuers.?

Trump’s Regulatory Dichotomy The Trump administration’s stance is paradoxical:

while advocating a 10% rate cap (a populist priority), it is expected to greenlight the Capital One-Discover merger—a boon for Wall Street. This duality underscores the tension between voter-friendly rhetoric and pro-business policymaking.?

Global Precedents and Economic Implications Lessons from the EU and Australia

The EU’s 2015 interchange fee cap (0.3% for credit cards) reduced merchant costs but eroded rewards programs. Similarly, Australia’s 2003 rate regulations led to tighter credit standards. “There’s no free lunch,” warned Jared Dillion of *Reason* magazine. “Caps disrupt the economics of lending”.?

Macro Risks: Credit Contraction and Recession?According to Moody's Analytics, a 10% cap could shrink the $1.1 trillion U.S. credit card market by 40%. Such a contraction might trigger a liquidity crisis, particularly if coupled with rising defaults.?

Voices from the Frontlines Consumer Advocates: Banks Have a Moral Duty? Bernie Sanders: “When you charge 25% interest, you’re not providing a service—you’re exploiting desperation”.? Chi Chi Wu: “Rate caps must pair with a strong CFPB to prevent fee abuses”.?

Banking Executives: This Is Economic Suicide Lindsey Johnson: “APR caps will force lenders to exit the riskiest segments of the market”.? Jamie Dimon (JPMorgan Chase): “This isn’t just about profits—it’s about preserving access to credit for millions”.?

Economists: A Double-Edged Sword Larry Summers (Former Treasury Secretary): “Rate caps are well-intentioned but risk unintended consequences in a debt-driven economy”.? Janet Yellen (Federal Reserve Chair): “Targeted relief, like expanding the MLA, may be more sustainable than blanket caps”.?

A Path Forward? The Hawley-Sanders bill has ignited a necessary conversation about equitable credit access, but its one-size-fits-all approach risks collateral damage.

A compromise might involve:?

1. Phased Cap: Start with an 18% ceiling, mirroring credit unions, and assessing impacts.?

2. Enhanced CFPB Oversight: Strengthen fee regulations and transparency mandates.?

3. Expanded MLA Protections: Extend the 36% military cap to low-income households.?

As Ted Rossman of *Bankrate* noted, “Banks must offer concessions to avoid drastic reforms”. Whether through voluntary rate reductions or negotiated legislation, the financial industry’s response to this populist surge will shape the credit landscape for decades.?

Sources: [CNBC](https://www.cnbc.com/),

[Forbes](https://www.forbes.com/),

[Deseret News](https://www.deseret.com/),

[Bankrate](https://www.bankrate.com/).