For millions of Americans, the credit card bill has become one of the most stressful pieces of mail of the month. Credit card balances across the country hit $1.23 trillion in the third quarter of 2025, a year-over-year increase of nearly 6 percent, according to the Federal Reserve Bank of New York. With grocery prices still elevated and wages struggling to keep up, many families are using plastic just to get through the week.
President Donald Trump says he has a fix. On January 9, he posted on Truth Social that “we will no longer let the American Public be ‘ripped off’ by Credit Card Companies that are charging Interest Rates of 20 to 30 percent, and even more,” and called for a one-year cap on rates at 10 percent, starting January 20. At the Detroit Economic Club, he kept it short: “The rates are way too high.”
The idea is not new. Senators Bernie Sanders of Vermont and Josh Hawley of Missouri had already introduced a bill to cap credit card rates at 10 percent for five years. Sanders described the current system in blunt terms: “When large financial institutions charge over 25 percent interest on credit cards, they are not engaged in the business of making credit available. They are engaged in extortion and loan sharking.”
A Vanderbilt University study backed the savings argument. Researchers found that a 10 percent cap would save consumers $100 billion per year in reduced interest payments. A cardholder carrying a $5,000 balance would pay roughly $42 a month in interest at 10 percent, compared to about $100 a month at the current average rate of 24 percent.
So why are so many financial experts worried?
The hidden cost of cheap credit
Ari Page, a business credit expert who runs the consulting firm Fund&Grow, argues that the proposal looks better on paper than it would in practice. The core problem, he says, is that interest rates are not arbitrary. Banks set them based on how likely a borrower is to pay the money back.
Page explained that lenders review factors such as “payment history, income, and amount of outstanding debt” before making lending decisions, and that “your credit score is a proxy for risk to the lender.” People with strong credit get lower rates. Riskier borrowers pay more because lenders need a cushion against potential losses.
The business of running a credit card, Page says, is more expensive than most people realize. Lenders borrow money themselves, often at costs tied to the Federal Reserve’s Prime Rate, which currently sits at 6.75 percent. On top of that, they pay for fraud prevention, customer service, technology, and employee costs. Research from the Federal Reserve Bank of New York shows operating expenses alone can average between 4 and 5 percent per year. And when borrowers default, those losses fall entirely on the lender. The New York Fed reports that subprime borrowers carry charge-off rates above 9 percent.
Stack those numbers up, and a 10 percent cap leaves almost nothing. “The math simply doesn’t work,” Page said.
Ted Rossman, senior industry analyst at Bankrate agreed, saying, “The unintended consequence would be that access to credit would dry up. It just won’t be profitable [for banks] if 10% is the most they could charge.”
Who gets cut off first?
When lenders can no longer price loans based on risk, Page argues they do not simply accept lower profits. They stop lending to riskier borrowers altogether. “This means only borrowers with the absolute highest credit scores would be able to get credit,” he said.
The New York Fed has found that states with similar caps saw sharp drops in credit availability for subprime borrowers. Page believes a federal version would scale that problem nationwide. The American Bankers Association has estimated that as many as 85 percent of current credit card accounts could be closed or significantly reduced if lenders can no longer make the economics work.
That would ripple through the broader economy. Credit card spending accounts for 30 to 40 percent of total annual consumer spending, so tighter credit for lower-income Americans could reduce overall consumer spending by roughly 5 percent, according to Morgan Stanley analysts, effectively canceling out any spending boost from lower rates.
“They would find it dramatically more difficult to access credit,” Rossman told CBS News. Borrowers shut out of the credit card market would likely turn to payday lenders and other options that carry even higher rates and fewer consumer protections.
Lindsey Johnson, president and CEO of the Consumer Bankers Association, put it this way: “Research clearly shows that when politicians, rather than the free market, dictate prices, consumers ultimately pay the price through limited choices outside the well-regulated banking system.”
Beyond the individual borrower
Page also raises a concern that has gotten less attention in the debate: the effect on small businesses.
Many small business owners rely on business credit cards to manage cash flow, cover payroll during slow months, or buy inventory. Because those cards often require a personal guarantee, business owners are typically approved based on their personal credit history. Tighten consumer credit standards, and business borrowing tightens with it.
“Without access to this credit, many will be forced to make layoffs,” Page warned. Some businesses that cannot cover short-term expenses could close entirely.
Then there are the rewards programs that tens of millions of cardholders depend on. Americans earned $47.5 billion in credit card rewards in 2024 alone. A hard cap at 10 percent would squeeze the revenue that funds those programs, likely leading issuers to cut sign-up bonuses, reduce points multipliers, or raise annual fees. Page argues those cuts would fall on consumers who never asked for a rate cap in the first place.
Whether it can even happen
The legal path for this proposal is far from clear. “It’s not going to happen through executive action,” said Brian Shearer, the Vanderbilt researcher behind the $100 billion savings estimate. “But if he can get the Senate majority leader and speaker to put it up for a vote, it’s quite possible the bill would pass.”
TD Cowen analyst Jaret Seiberg noted that even Congress would face limits: “Enacting a 25% cap would be harder as it could affect first-time credit card holders and subprime applicants.”
Page’s view on all of it is direct: “Our economy today is shaky. But the solution isn’t more government intervention.”
The frustration behind Trump’s proposal is real. Rates have climbed steeply over the past several years, debt is piling up, and a growing number of Americans feel like they cannot get ahead. But Page and other critics argue that capping rates at 10 percent would not solve the debt problem. It would shift it, cutting off the borrowers who need credit most, shrinking the small business lifeline that many communities depend on, and leaving behind fewer options at the exact moment people can least afford it.
