Congress is considering a 10% cap on credit card interest rates and President Trump voiced his support for such legislation in his Jan. 21 speech at the World Economic Forum in Davos, Switzerland. Trump said that capping the interest rate on credit card debt at 10% would “help millions of Americans save for a home.”

The movement to cap interest rates on credit card debt reminds me of the Sir Arthur Conan Doyle’s story “A Scandal in Bohemia” in his book, “The Adventures of Sherlock Holmes.” In the story Watson, a friend of Sherlock, walks by the townhouse where Sherlock lives and sees that Sherlock is in.

Watson enters the building, walks down the hall and knocks on Sherlock’s door. Sherlock lets him in and after they have been chatting for a bit Sherlock asks, “Watson, how many steps are leading from the hall to my room?” Watson says that he doesn’t know.

Sherlock asks him how many times he has made the walk and Watson says that he has made it lots of times. Sherlock replies, “The problem with you, Watson, is you see but you do not observe.”

Like Watson, those who favor the interest rate cap see but they don’t observe. They see that many people would pay lower interest rates on their credit card debt. But they don't observe the effects this will have on the industry or on people who use or want to obtain credit cards.

Price controls will always result in less supply. In this case, fewer people will be able to obtain credit cards since credit card companies won’t earn as much interest under a cap. I am old enough to remember when President Nixon set price controls on retail gasoline sales in 1971. The amount of gasoline demanded increased, but the supply of gasoline decreased, leading to a shortage and long lines at gas pumps.

Banks charge interest on credit cards because they incur costs in providing them. For example, banks must cover the cost of producing the cards, administering their use, maintaining security, and so on.

When you use your credit card at a grocery store, the company that issued your car pays the grocer. The card issuer then sends you a bill. Credit card purchases, thus, financed by unsecured loans that have relatively high default rates. According to Statista, 12.4% of credit card debt is 90 or more days past due.

Most transactions in the U.S. are made with credit or debit cards, according to the Federal Reserve’s Diary of Consumer Payment Choice. In 2024 debit cards accounted for 30% of all transactions while credit cards accounted for another 35%. This shows how convenient these cards are relative to using cash. Think of the last time you went to dinner with friends, and the bill was paid in cash. Merchants, for their part, like credit cards since they make handling transactions faster and safer.

Using cash is not costless. Cash is often perceived as the cheaper option, but handling it comes with its own costs. Businesses must store and secure cash, pay for armored transport, and account for risks like theft and counterfeit bills. According to a report by IHL Group, handling cash can cost retailers between 4.7% and 15.3% of the transaction value.

It is clear that people want to use cards more often and cash less frequently. Cash usage has dropped from 30% of transactions in 2017 to 14% through 2024, according to the Federal Reserve’s Diary of Consumer Payment Choice. The share of Americans who reported not using cash for any of their payments in a typical week grew from 24% in 2015 to more than half in 2025, according to eMarketer.

Capping interest on credit cards means that fewer people will be able to use credit cards and customers will buy less. This will harm business in general, but especially businesses in low-income areas.

Some may think that low-income people and families will gain the most from a cap on interest rates since they will pay less in interest. In reality, they will lose as banks recall or stop issuing cards to high-risk and low-income customers.

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