President Trump’s January Truth Social post calling for a one-year 10% cap on credit card interest has sparked a vigorous debate that crosses partisan and right/left lines. I recently signed onto a coalition letter opposing price controls through either credit card interest caps or the misnamed Credit Card Competition Act, which is pending before the U.S. Congress.

While interest rates on many credit cards are higher than they have been in recent years, some of that is a function of the Federal Reserve’s keeping overall interest rates higher than they have been for decades. When banks have to pay more to borrow, that flows through to the rates they have to charge when they loan that money back out.

Additionally, credit card borrowers who pay their balances in full each month pay zero. While some borrowers need to carry balances for personal reasons, much of the problem can be chalked up to low financial literacy and poor spending habits. As a general rule, people should only spend on credit cards what they can pay in full at the end of the next billing period.

Current credit card fees and annual percentage rates seem out of line on the surface, and the big banks are easy villains. However, five things will result if Washington politicians are serious about pursuing such price controls:

1. Credit card issuers know the break-even point on various categories of borrowers. Capping APR at 10% shifts that meaningfully. If you have a credit score below 700 or late/non-payments on your history, do not be surprised if your credit card gets cancelled.

2. For consumers with higher credit scores, your credit card rewards are paid from interchange fees assessed against retailers and restaurants. Caps on interest charges will require interchange fees to cover expenses and delinquencies instead, which will slash or end these rewards. Leisure travel and businesses that depend on vacationers will take a big hit.

3. U.S. airlines are credit card vendors that happen to operate fleets of planes. They are lucky to break even from their “core” business of flying. Of particular interest to Michiganders: Delta, the healthiest among them, had $5.8 billion operating income last year. It earned $8.2 billion from its co-branded American Express cards. Make the credit cards less lucrative and the outlook for US airlines becomes quite turbulent.

4. People spend more on retail purchases when they use credit cards for purchases than they do with debit cards, checks, or cash. This will be a hit to retail stores.

5. The beneficiaries of this policy will not be credit card users. Instead, it will be auto title lenders and loan sharks.

Price controls on credit card APR and fees will harm far many more Michiganders than they will help. For their sake, I hope the Washington politicians will back down from these harmful ideas.

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