A national cap on consumer interest rates?

Two politicians with whom I regularly disagree have proposed a national cap on credit card interest of 15% a year. Because they are well known figures, the proposal is likely to get some attention.

Per one reporter, the current median card interest rate of 21.36% breaks down to 17.73% for high credit scores and 24.99% for people with low credit scores. Who do you think will be denied credit altogether under a 15% cap? Are they better off with an option of 24.99% credit, or with no option of credit at all?

Since the idea of interest caps is anything but new, economists have had a long time to study this issue, as I noted in this earlier post. One recent study looked at Arkansas, a state with a throwback constitutional provision capping allowable interest rates at 17 percent. The effect is to keep some otherwise common financial products from being offered in the state, as a result of which many Arkansans “drive to neighboring states to take out small-dollar installment loans.”

Why think that the government can set price ceilings well below market clearing levels without causing shortages of the affected good or service? More fundamentally, why should the government stand between two parties in a willing transaction? More: Steve Horwitz.

P.S. Did someone bring up postal banking?


  • Good lord, who are these people with high credit ratings who are taking out credit cards with an interest rate over 17.73%? I have a Visa that I’ve had for decades and it has never gone above 7.5%, even when I had some credit struggles due to a divorce.

  • For me, the interest rate on my card is 0% because I pay it off every month. If you use a debit card there is again no interest rate.

    These idiots think that by fiat they can “fix” a problem, but end up hurting the poor. There are good reasons that people need short-term credit even at a high interest rate. Maybe without the credit you get kicked out of your apt and become homeless or get your car repossessed. Maybe you need it go post bail so your husband doesn’t lose his job. Might be worth it.

  • Ahhhhh but with the Post Office handling all your banking needs everything will be okay. Don’t qualify for a “regular” credit card, let the Post Office issue you one at a “fair” interest rate. Even though you don’t have a stable job or a decent credit history, you deserve to be in debt like the more better off of us. And if you can’t pay, no worries. Uncle Bernie will be there to write if off like student loans. It’s only fair, after all.