President Trump called for a temporary, nationwide cap on credit card interest rates at 10% APR for one year, beginning January 20, 2026. He announced the proposal publicly through posts on Truth Social and reiterated it in remarks to reporters and in public speeches. His logic: it's a consumer‑protection measure aimed at reducing what he described as “excessive” credit card interest rates—often 20% to 30%, and higher for subprime borrowers.
Most bad ideas offered by government officials sound good. What's not to like? Champion the consumer that pays that level of interest rates while carrying credit card balances. To heck with the banks! I could see the pithy slogan on the protester sign.
The problem is that in less time than it would take our hypothetical protester to grab his sharpie and scribble his sign, he could have asked his favorite AI tool to research when the US tried rate caps in its history and what was the result. You would think a reporter would do it and ask any proposer "didn't we try interest rate caps through various state usury laws and, according to a peer-reviewed New York Fed study that credit access declined sharply for high-risk borrowers and delinquency rates did not decline?"
The reporter could have entered the query as the populist, yet foolhardy proposal was coming out of the politician's mouth. In fact, going back through US history, using peer-reviewed studies to feed the summary table, it is clear that interest rate caps restrict credit, particularly for riskier borrowers. But that doesn't fit well on our protesters sign.
Overarching Scholarly Consensus
Across four centuries of U.S. economic history, peer‑reviewed research consistently finds that: Interest‑rate caps reduce the supply of credit more reliably than they reduce the price of credit.
The empirical pattern—observed repeatedly in different eras, legal frameworks, and financial systems—is:
- Credit rationing
- Market exit by lenders
- Disproportionate harm to higher‑risk and lower‑income borrowers
- Minimal or no improvement in default outcomes
The evidence is clear and accessible. The question is, should policy be driven by observable facts and common sense, or by what sounds good?
~ Jeff
Sources:
What tool helped me find all of this peer-reviewed research without having to scroll through mountains of BS on a search engine? Copilot.
