Capping credit card Interest at 10% is a terrible idea
Just a little background: The first half of my career was in credit risk, both underwriting and then later, building the actual credit risk models. I now help banks and other lenders leverage AI/ML model outputs to build risk-based strategies. (Consulting)
Also - I am not suggesting in any way that credit card debt is not an issue in this country. It is a complex solve, but let me try to explain why capping credit card interest rates is an absolutely awful idea.
- This will not just impact credit cards. Banks and Financial Institutions utilize low interest mortgages and auto loans to attract membership, so they can cross-sell higher profit/higher risk products like credit cards and other unsecured debt. Without the profitability from credit cards, everything else becomes more expensive, including home ownership, which to this day, is still where most Americans carry their wealth.
Additionally, the only reason that banks are able to offer high interest yielding savings, money market, and CDs is because they can re-lend that money at a higher rate. These accounts will cease to exist, at least in the short term.
This really just creates a shell game. The banks are always going to make money. You think fees are bad now? This has an impact to entire fee structures from credit card interchange rates,, monthly fees, late fees, processing fees, use-fees, acquisition fees, maintenance fees, membership fees, annual fees, and fees just because 'fees.' This approach to a fee based model will not be limited to credit cards and will be passed on to all consumer lending products.
Credit cards suck, but people rely on them for emergencies. 1 out of 4 Americans don't have $1,000 to their name. What happens when the car breaks down? What happens when the kid has to go to the hospital? Credit cards are a lifeline for many... and although that can create issues down the road, it does help satisfy need in the short term.
You will drive the most vulnerable populations to even LESS desirable financial products. Yes, 20%+ interest rates are awful, but have you ever been in a payday loan cycle? These will become the only alternatives to those with sub-prime credit because banks and credit unions will not be able to price this risk effectively. I suppose there is also a potential for more a black market lending industry popping up, but that is more theoretical.
In summary, you are going to make life for all Americans more expensive and you're going to hurt the people that you intend to help.