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?