Credit Card Interest Rate Cap—Will It Fix Your Problems?
- Some prominent politicians have proposed a 10% cap on credit card rates.
- There are reasons to doubt how much this might actually help people struggling with credit card debt.
- You can pay less interest already with smart credit moves—and without waiting to see if the proposal becomes reality.
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It's unusual for President Donald Trump and Senator Bernie Sanders to agree on something. That's one of many reasons a proposed 10% cap on credit card rates has gotten a lot of attention.
Another reason? Americans pay over $160 billion a year in credit card interest. With the average credit rate currently in excess of 20%, a 10% cap could cut the interest charged on credit cards pretty dramatically.
For Americans looking for credit card debt relief, that's an attractive prospect. Unfortunately, it's far from reality. There are serious political questions about whether such a proposal could become law. Even if that happens, a rate cap could only help so much. It could even hurt some credit card customers.
The good news? There are ways you can pay less in credit card interest without waiting for Washington to act.
How Are Credit Card Interest Rates Determined?
Currently, credit card rates are set independently by each card issuer, so those rates vary widely. Several cards charge rates below 20%, while some others charge rates above 30%.
Those rates are based on a variety of factors:
The cost to the credit card company for borrowing money
The cost of covering the risk of customer defaults
The cost of covering expenses and the company’s profit margin
Credit card rates don't just vary from one card to the next—a rate for the same card can be very different for customers with low credit scores than for those with higher credit scores.
What Is a Credit Card Interest Rate Cap?
An interest rate cap would put an upper limit on what credit card companies can charge. Rates could vary, as long as they did not exceed the cap.
An interest rate cap is seen as a way to limit the profits credit card companies can make at the expense of their customers. However, some customers use their cards differently than others, and some have better credit histories than others. Because the credit card business is so varied, a one-size-fits-all-cap would be an awkward fit.
What Kind of Credit Card Interest Rate Cap Is Being Discussed?
President Trump has called for a one-year, 10% cap on credit card rates. There are also congressional proposals to limit those rates to 10% permanently.
So far, few details have been provided as to how this would work. Trump initially proposed a January 20, 2026 deadline for the new cap. That date has come and gone with no action—this is because the President lacks the authority to unilaterally cap credit card rates. It would have to be done voluntarily by credit card companies, or by Congress passing a law.
Credit card issuers are unlikely to voluntarily agree to a widespread cap. There is strong industry opposition. They may make special offers in response to the call for a cap, but these are likely to be limited.
There is bipartisan support in Congress for a credit card interest rate cap, but it remains to be seen if this support is strong enough to pass a law. It's not just that bankers represent a powerful lobby against a cap—there are also strong concerns about the negative economic impact of a rate cap.
Possible Limitations on Benefits of an Interest Rate Caps
There is a lot of uncertainty about whether a rate cap will become reality. Even if it does, there are several reasons why its impact could be limited.
It's unclear whether the cap would apply to existing balances
Generally, interest rates are set by the credit card agreement. Changes to rates are typically made according to a formula described in the agreement.
A cap would cause a change that's not based on the formula in the agreement. Therefore, credit card companies may not be obligated to apply the capped rate to existing balances unless a new law mandates it.
In that case, it wouldn't help with your current credit card debt. It would only apply as you make new purchases that add to your balance. Thus, the impact would be gradual rather than an immediate game-changer.
The cap may only last for one year
President Trump's proposal would only cap credit card rates for one year, so any relief would be temporary. The impact over a single year would be especially small if the cap only applies to new purchases.
Congress could pass a law making the cap last longer. However, that would increase opposition.
Customers with poor credit may lose their cards
This may be the worst way the proposed cap could backfire.
People with bad credit are more likely to miss credit card payments. Over 20% of subprime customers are 90 days or more overdue on their card payments. A 10% rate cap would mean those customers become very unprofitable to credit card companies. As a result, companies might cancel the credit cards of customers with weaker credit histories.
A 10% cap would be so dramatic that more than just subprime customers could be affected. The American Bankers Association, an industry group, estimates that well over 100 million credit card customers could lose their credit cards. Companies might, they claim, close the credit card accounts or drastically lower the credit limits of 74% to 85% of customers.
Remaining customers may see rewards cut
A rate cap could cut customers off from credit cards if they have lower credit scores. That would just leave customers with excellent credit histories.
Many of these customers tend to pay their card balances in full every month, so they wouldn't really benefit from a rate cap. However, as the profit margins on credit cards tighten because of the cap, they could see rewards and other benefits cut.
How You Can Limit the Interest You Pay Without Washington's Help
There are two huge uncertainties surrounding the proposed rate cap:
It might not ever be enacted
It might be of limited benefit to the typical credit card customer
Instead of relying on Washington to save you money with a rate cap, you can do these things to pay less in credit card interest:
Devote more of your budget to paying down credit card balances. If you can, pay more than the minimum on your credit card bills. Consider devoting large, lump-sum payments such as bonuses and tax refunds to debt reduction.
Use a balance transfer card to refinance credit card debt. A 0% balance transfer card can save you from interest charges for a limited period. You can use that time to pay down your balance and make those savings permanent.
Work on improving your credit score. Credit cards generally charge much higher interest rates to people with weaker credit scores. That means there's a lot of money to be saved by improving your credit score.
Shop around to find a card with a lower interest rate. The credit card market is very competitive. There are lots of options to choose from. See if you can find one you qualify for that offers a lower rate.
Use debt relief to reduce unmanageable credit card debt. If you have more debt than you can afford, a rate cap would be of limited help. You may need to explore debt relief that can reduce the amount you owe.
Politicians from both parties like talking about a credit card rate cap because it's a popular idea. Whether they can actually deliver a cap is another question. It also may not turn out to be as good as it sounds.
Reducing the amount of interest you pay may be one job you don't want to leave up to Washington. Put yourself in charge by taking action yourself.
Author Information
Written by
Richard Barrington
Richard Barrington has over 20 years of experience in the investment management business and has been a financial writer for 15 years. Barrington has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Prior to beginning his investment career Barrington graduated magna cum laude from St. John Fisher College with a BA in Communications in 1983. In 1991, he earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the "CFA Institute").
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
How low would credit card rates go under recent proposals?
The number that has been proposed is 10%. That would be much lower than rates have ever been in the 30-plus years the Federal Reserve has been tracking that data. It remains to be seen if the proposal will become law. If it does, it remains to be seen whether the cap would apply to all cards and customers.
How would I benefit from an interest rate cap?
You could benefit if you regularly pay interest on credit card balances. On the other hand, experts warn that the cap could cause companies to cancel some customers’ credit cards. With a 10% cap, credit card companies might only want to keep customers with excellent credit.
Could a rate cap cause me to lose my credit cards?
People who have had credit problems could be at risk. If your credit score isn't great, a cap could prompt credit card companies to cancel your cards. If your card isn't cancelled, you might find your credit limit severely lowered.