A Point Counter-Point Examination
By: Dean Sheaffer, Mark Horwedel, and John MacAllister
The President recently announced via Truth Social that he would be calling for a credit card interest rate cap of 10%. While we believe it very unlikely that this cap will materialize, it offers a great opportunity to think through motivations for and actual impacts of such a cap – especially for merchants. We present this as a Point / Counter Point Article and hope the reader will comment with their thoughts.
Point: A 10% APR Cap Would Reduce Access to Credit and Harm Merchants
POINT: A federally imposed 10% cap on credit card interest rates would not merely lower borrowing costs, it would fundamentally alter the economics of unsecured revolving credit. The most immediate and predictable response from issuers would be mass account closures and tighter underwriting, particularly for consumers with lower FICO scores or volatile income profiles.
Credit cards are priced on risk. For subprime and near-prime borrowers, default rates, fraud losses, servicing costs, regulatory compliance, and capital requirements materially exceed those for prime consumers. A 10% APR ceiling would make many of these accounts economically unviable, even before accounting for rewards programs, dispute handling, fraud protection, and grace periods.
As a result:
- Millions of accounts would likely be closed or never opened
- Remaining credit would skew heavily toward high-FICO consumers
- Credit limits would shrink, even for existing cardholders
COUNTER POINT: Have you ever noticed that banks always challenge efforts to reform their broken card schemes with threat scenarios designed to make reformers run and hide. They concoct wild scenarios that suggest their schemes are based upon logic designed to strike balance between the parties to their schemes, while their actual sole motivation is simply to generate the highest possible profits from their monopolistic endeavors!
Why This Matters to Merchants
POINT: For merchants, especially SMBs, credit cards are not just a payment method, they are demand infrastructure.
When consumers lose access to revolving credit:
- Emergency purchases (auto repair, appliance replacement, medical co-pays) are delayed or forgone
- Large-ticket discretionary purchases disappear
- Average ticket size declines
- Conversion rates drop, especially in ecommerce and services
Merchants would feel this impact quickly. A consumer who can pay later is far more likely to buy now. Removing that option suppresses spend—particularly in categories like:
- Home improvement
- Electronics
- Automotive services
- Travel
- Healthcare-adjacent retail
The net effect is lower sales volume, slower inventory turns, and increased pressure on merchant margins, especially for businesses already operating on thin profit.
COUNTER POINT: We’ve heard their proclamations of doom and gloom before, and their claims have all turned out to be baseless BS! They claimed debit cards wouldn’t survive Durbin. They claimed credit cards wouldn’t survive in Europe and other markets after interchange regulation. Now, they’re claiming merchants will regret surcharging, but more and more merchants are surcharging or discounting for cash or other less-costly alternatives to overpriced credit cards every day. Apparently, these merchants don’t buy the BS!
Some key considerations:
- 25–30% APRs are exploitative
- Credit card debt traps consumers
- Banks earn excessive profits from interest and fees
- A cap would force institutions to treat consumers more fairly
These concerns resonate emotionally—and not without reason. Credit card pricing can be aggressive, and some consumers struggle with revolving balances.
While most businesses change and evolve, banks do not! They hang on to outdated services operating on outdated systems as a way of life. They resist every effort to challenge them politically and use their political power to create roadblocks for potential competitors who actually lead innovation in financial services.
Greed vs. Need
POINT: “Banks are Greedy – Interest Rates of 30+% Are Outrageous”. Couple this with their prior use of Reg Q as an excuse to keep their cost of funds low and now, their throwing fire and brimstone at the effort to cap the other side of the balance sheet and you can see how one-sided the overall equation becomes.
COUNTER POINT: High APRs Are a Signal of Risk, Not Pure Greed
High interest rates on credit cards are not primarily a function of institutional avarice—they are a reflection of:
- Unsecured lending (no collateral)
- High charge-off rates in lower credit tiers
- Fraud losses
- Regulatory compliance and servicing costs
- Grace periods and zero-interest promotional balances
- Network fees, rewards, and dispute rights borne by issuers
If lenders cannot price for risk, they will not assume it.
A 10% cap does not make risky borrowers safer—it simply removes them from the market.
This is not theoretical. Every major historical attempt to impose strict interest caps (including state-level usury limits) has resulted in:
- Credit rationing
- Migration to alternative, often worse products
- Reduced competition, not increased fairness
Credit Vs. Debit/Cash
POINT: “Consumers Will Just Use Debit or Cash”
COUTERPOINT: Debit and cash are transactional tools, not credit instruments. They do not solve for:
- Timing mismatches between income and expenses
- Emergencies
- Unexpected large purchases
- Liquidity smoothing across pay cycles
For many households, especially those without savings buffers, credit cards are the only short-term liquidity tool available.
Removing that option doesn’t eliminate the need, it pushes consumers toward inferior substitutes, such as:
- Payday loans
- Rent-to-own arrangements
- BNPL products with opaque fee structures
- Overdraft programs with effective APRs far exceeding credit cards
Ironically, a credit card APR cap could increase the use of more expensive and less regulated financial products.
It Is All About Fees and Rewards
POINT: “Issuers Can Make It Work by Cutting Fees or Rewards”
COUNTER POINT: Rewards and benefits are not evenly distributed:
- Subprime cardholders rarely receive premium rewards
- Many already pay annual fees
- Issuer margins on low-FICO accounts are thin even with high APRs
Cutting rewards might affect prime cardholders, but it does nothing to solve the fundamental loss profile of high-risk accounts under a 10% cap.
The rational response is not product redesign—it’s portfolio contraction.
Broader Economic Impact
At scale, reduced access to revolving credit would:
- Suppress consumer spending
- Increase demand volatility for merchants
- Shift risk from regulated banks to shadow lenders
- Slow economic recovery during downturns, when credit access matters most
Credit cards act as a shock absorber in the economy. Limiting their availability amplifies downturns rather than protecting consumers from them.
A More Constructive Path Forward
POINT: If the goal is consumer protection without harming merchants and access to credit, better tools exist:
- Enhanced disclosure and transparency
- Limits on penalty fees rather than APRs
- Incentives for installment conversion at lower rates
- Encouraging competition among issuers and alternative rails (Look to the Credit Card Competition Act – also recently endorsed by the Administration)
- Expanding responsible debit-based and pay-by-bank options
Blunt caps may feel satisfying—but they trade visible pain (high APRs) for invisible damage (lost access, lower spend, weaker merchants).
COUNTER POINT: With respect to Trump’s demand that banks reduce the interest on revolving credit to 10%, I appreciate his threat of doom and gloom to the banks and suggest he is only using the banks own time-tested tactic on the banks themselves. Pity the fools (banks)!
Perhaps a more nuanced approach to Trump’s headline-grabbing 10% rate might be as follows:
- Statutory restrictions on revolving credit rates tied to credit scores and the underlying cost of funds with caps based upon a multiple of the underlying cost.
- Drastic reductions to junk fees based upon the actual costs associated with overlimit fees. NSF fees and other fees presently designed to maximize revenue on those struggling to make ends meet. And the banks don’t get to claim they’re simply training consumers to avoid hazardous practices given their hypocrisy on relying on taxpayers to bail them out for their own hazardous practices. When did we teach them a lesson?
- Force the ten or twenty biggest card issuers to negotiate directly on interchange with the ten or twenty largest merchants. This will likely result in reduced interchange fees which will benefit consumers by lowering prices.