AOC and Anna Paulina Luna have teamed up to take credit away from poor people. They’ve introduced legislation that would cap credit card interest rates at 10%, below the level they’ve ever been. That might allow card financing to remain in place for customers who are near-certain credit risk. It means extending credit to borrowers less able and certain to pay back would not be viable.
And since the best rewards cards roughly speaking rebate the full value of interchange captured by the bank issuer, with those banks hoping to pick up cardmember revolve, eliminating the financial viability of revolve also effectively eliminates valuable rewards cards. This further has the effect of undermining the financial viability of the current airline model.
For instance, Southwest Airlines launched Hawaii service in large measure to make their co-brand credit cards attractive to customers who wanted to use their points to Hawaii.
Southwest Airlines Honolulu
American Airlines learned with its JetBlue partnership that competing in New York, adding seats to the market and driving down fares, made their loyalty program a viable option for consumers in that most lucrative spending market.
American Airlines New York JFK
Co-brand cards make airfare cheaper, and undermining their viability would have the opposite effect.
Congresswoman Anna Paulina Luna (R-FL) is working with Congresswoman Alexandria Ocasio-Cortez (D-NY) to cap credit card interest rates at 10%.
This is a good thing. pic.twitter.com/VyzsMUmesv
— Eric Daugherty (@EricLDaugh) March 8, 2025
On the Senate side, this is backed by the least economically literate members on each side of the aisle Bernie Sanders (I-VT, who edges out Elizabeth Warren) and Josh Hawley (R-MO).
Price caps create shortages, but that’s the point. They want to take away options, because they think poor people are stupid and lack agency. They are getting ‘trapped’. Luna explains, “For too long, credit card companies have abused working class Americans with absurd interest rates, trapping them in an almost insurmountable amount of debt.” But it’s not credit cards that keep people poor, it’s poverty. What’s the alternative to credit card interest?
- People still need credit, for instance they still need to get their car fixed to go to work
- When they choose credit card financing, it’s because it appears to be their best option
- Take that away, and they’re stuck with their next best option
- Which is generally even higher cost.
Buy now pay later services from Uplift and Paypal charge up to 36% interest which is generally higher than what you’ll get from credit cards. With fixed fees amortized over short periods, payday loans can have APRs up to 400%.
Now, there’s a level where credit card interest wouldn’t matter. Cap credit card interest rates at 40%, and the rule would have no effect (at current bank issuer financing costs). But a 10% cap is clearly below the market-clearing price. Credit card interest rates have never been that low. Remember, it’s pre-approved unsecured financing that can be drawn at-will.
Remember that credit cards are voluntary. If you think their interest rates are too high to make sense, don’t use them for financing. Eliminating them as an option doesn’t eliminate the need for financing. Money lenders have been a convenient political (and other) target for centuries for those who can’t think more deeply about problems, or cynically for politicians who believe their constituencies cannot.
Credit cards are the piping that underlies financial transactions in the United States, and allows consumers to seamless make transactions wherever they go around the world. Swipe a card or tap a phone, and merchants have confidence they’ll get paid by someone they’ve never met and may never see again. Interfering with that risks profound effects across the entire economy, beyond the personal hardships restricting access to credit to more marginal borrowers would mean.
And it would have effects beyond undermining credit card rewards and airline stability, which would further entail a return to Congress for more taxpayer money, which Delta CEO Ed Bastian has said they’d get.
Gary, this is a bad take. Unfortunately, you’re thinking zero-sum, when you should be considering win-win scenarios. It is remarkable that left and right economic populists can agree on this–but it’s not unreasonable: these usurious interest rates are harmful to most folks. And if these major companies (credit cards, banks, airlines, hotels, etc.) can only run these programs by harming certain vulnerable groups, than that’s an underlying problem with their business model. Loyalty programs and points programs do not have to come at the expense of others. These businesses can make slightly less profit (yet still be quite profitable) without having to harm anyone. Yes, some greedy shareholders and oligarchs may be disappointed–good.
Capping credit card interest at 10% is insane. There is no unsecured debt you can get elsewhere remotely near that amount. Currently, I’m lending to good borrowers on secured bridge debt for 12-14% with under 60% LTV. Unsecured is probably closer to 20%, I don’t lend to unsecured.
Some bare minimum empathy for people who get bamboozled and bankrupt by these credit card companies is how one should view this.
For every points hack you extoll there’s someone losing their car and house by these predatory banks.
Right on schedule, 1990 again with the dumbest take imaginable
Gary is 100% correct on this issue
There can be a negotiated cap. PayPal is charging 36 percent interest rate on their virtual credit card , that’s insane it’s robbery !
That’s pretty disgusting, 10 percent cap or not they will still make gross profits !!
Hello ????
Any comments on the 0% introductory rates that last about a year or 0% balance transfers (actually 3% fee)?
@Hal — 10% is not ‘insane’—usurious interest is actually unreasonable. Lenders should scrutinize their borrowers more robustly if you are actually concerned. Rather, I think you’re taking the bait on the industry’s fear tactics of ‘but, but, we’ll have to end the points and miles programs!’ Nope. These corporations can manage themselves better, still profit immensely, all without screwing and scamming consumers. Period.
@Coolio — Call me whatever names you’d like (‘dumb’ this time, which is quite tame) all without addressing any substance—I’ll take that as a win for me. But, then, why not stick to a single name for you? Because switching between Mike P or Andy S to make it seem like there are more of you than there actually are is not fooling me.
See this story could have been covered without the political baiting and fear mongering. “Some fear it could… Other think this could really help…”
But instead we get this conservative think piece. Posted on a blog I typically respect and enjoy. I’m thinking of “View from the Wing” differently after reading this.
Sightly off-center, but Gary why would you buttress your argument by attaching pejoratives? I mean, how do Bernie Sanders or Elizabeth Warren become “least economically literate” in your calculus? Because they often stand up to Big Business? Because they point out the enormous wealth inequalities that now ravage this country? If that’s economically illiterate, I guess I’m one of them…
Gary, thank you for a great post and analysis. It’s helpful in exposing the stupidest, least educated members of our Congress (AOC, Luna) and Senate (Sanders), as well as local participants like 1990. Stupid enough to show complete lack of understanding of the subject, yet bold enough to claim a ‘win’.
I agree that we should exercise caution in restricting the maximum cost of credit, but the counterargument (which I find persuasive) is that the US credit card market is now effectively an oligopoly due to a series of big bank mergers and acquisitions. That means that the average credit card interest rate is currently above the competitively-efficient rate due to tacit collusion.
Fed rate cuts are no longer getting fully “passed through” to card holders like they once did when the industry was more competitive. Price controls are bad economic policy when the market is already efficient, but they can actually move a sector closer to the competitive market optimum when the sector has a collusive oligopoly or monopoly (so long as the price cap level is reasonable). Congress could pass a law capping interest rates at 10% and mandating that bank access to Federal Reserve loans and repo facilities is contingent on extending credit to Americans. The banks might loudly complain, but they would have little choice but to keep extending credit. The rewards cards would still exist (unlike in Europe), because rewards cards are primarily held by superprime borrowers. For these customers the banks (particularly Amex) make most of their profit from the interchange fee and annual fees, not from interest accrual.
If, however, Congress passed both the AOC-Luna interest cap AND the Durbin-Marshall-Welch proposed bill forcing card issuers to offer at least two payment network options to merchants (to drive down the interchange rate), then the rewards cards would indeed disappear and the premium leisure air and hotel travel industry would get decimated. Rewards card enthusiasts should focus their opposition on interchange fee caps that would impact superprime borrowers, not on the maximum interest rate charged to the subprime ones (who receive few rewards anyway).
Just pay off your credit cards every month like I always do and assume the vast majority (if not all) of people that post on here do. Problem solved!
As Gary noted, this will dramatically reduce credit options for many since banks will tighten their underwriting and also cut credit limits (and don’t expect any business to “voluntarily” make less profit). That means people that need credit will be reduced to taking out high interest pay day loans or go to a loan shark.
You can’t fix stupid and if people can’t manage their money or understand the cost of credit I have zero sympathy for them.
I would support a law that whenever somebody applies for a credit card, the information from the credit pull becomes available to the other credit card companies, and they can give unsolicited offers to the applicant for a card with better interest rates.
Yes it would divulge consumer information, and yes it would result in more spam mail, but it would incentivize credit card companies to make interest rates more competitive.
Credit cards used to be more voluntary but a lot of businesses no longer want to take cash. 10% as a fixed rate is so low that a lot of companies would end up only extending credit to the most credit worthy. I could see a rate of 6% or 8% above the year over year CPI percentage inflation, calculated monthly. It would still result in a massive amount of credit being withdrawn. For families with credit debt and student loans, a lower rate on credit debt along with a lower credit limit could give them more money to make sure that they can pay the monthly amount for the student loan. Probably student loans should be looked at so that loaning a high amount of money for a degree that is unlikely to boost wages by much will be cut. Degrees that have solid earning potential would still be able to get large education loans.
Simple pay off your credit cards every month and don’t live beyond your means. We have people making modest money with $20K in cc debt and a $700 car payment. Personally, I buy a good solid used car. Putting out $40K for a new car is not a good money decision.
But of course we have to have rules for the stupid in our society.
@ Gary — I find it highly inappropriate to call these Congresspeople illiterate and uneductaed (please reserve that for the magats). They know what they are doing and they know it is bs. I certainly hope they fail.
@Gene – I would agree with you in case of Sen. Hawley…he’s educated (I believe he has a J.D.) and smart; in this case, he’s just playing to the masses. Despicable populism, just like Bernie.
But AOC? The overrated bartender?? I see nothing in her congressional history to indicate the woman knows first thing about economics, capitalist system, markets, etc. And I don’t see her trying to learn or get educated either. All she can do is social media.
Can’t agree with your slam on the sen/rep’s finance creds. They are much smarter than you think. I taught math and can tell you that people don’t understand what credit card hell they can get into with current rates. And it’s true. Lower income people are especially susceptible to this trap.
Gary, your view is erroneous this time. The sheer greed of these card companies is beyond the pale. Perhaps 10% is too low and should be reserved only for the best risk. When you inquire about lowering a rate from 30%, they will almost always reject you. Is 18-20% not enough for these greedy creeps ??? As for the airline miles, almost always the savings in interest will be a better deal than mostly watered-down worthless miles. The banks should now pay for the years of ripping off their customers with usury.
Well it is bipartisan.
My .02 here…
As was pointed out by Gary and a few others, using a credit card is a choice and if you get in over your head because of stupid choices, that’s no ones fault but yours.
If the C.C. companies fell like they can’t make enough with the 10% ceiling, they will just not give credit to those they deem too risky. And those that NEED credit, they are going to have to move on to worse choices.
Anyone who remembers how hard it was to get a mortgage for years after 2008 will realize that capping interest rates will result in credit being unavailable to people without a perfect FICO.
It’s OK to advocate caps as long as you anticipate and accept this consequence.
Oh no airlines will gut their mileage programs but have someone else to blame this time!
“Southwest Airlines launched Hawaii service in large measure to make their co-brand credit cards attractive to customers who wanted to use their points to Hawaii.”
No airline is launching a flight for point redemptions. That’s like a car company building a car for the instagram likes.
I don’t understand what’s wrong with 10% rates. There is even an upside for the banks. In the 80s and 90s, credit was easy to come by, and interest hovered around 12-14%. The banks still made a profit and offered airline mileage programs. If banks had to lower interest rates to 10%, they would attract more people who wanted that debt and who would be willing to pay for it. Never in the past did we have 30% interest rates, and today few people I know have credit card debt. The real worry is Durbin’s credit card bill. Banks make a lot of money from swipe fees, and those are felt by big-box retailers and not cardholders. They also pay for our mileage cards. I would focus far more on nixing Durban’s bill than on AOC’s.
10% is too low, but some of the rates being charged are predatory and no better than loan sharking.
I personally benefit substantially from the status quo. Our net rebate in total is somewhere in the v high single digits based on our spend through my thoughtful habit of maximizing rebates (points or cash back) as one of my only real hobbies other than reading View. I have never paid a penny in credit card interest. I’ve also never been forced to apply for a credit card. We live in uncertain times. Hopefully someone will look out for the 1%.
How about not buying things you cannot afford as a way to stay out of credit card debt? Maybe that 40″ 1080p store brand is just fine, you don’t need the 80″ Sony 4K tv. Reminds me of the people who finance an expensive car for 96 months and don’t even realize the car drops half its value the moment they drive off the lot.
@Alex — This guy gets it.
@CSue — Fine, Congress should actually do its job and negotiate the particulars. Bring in experts. Have meaningful debate. Maybe there’s a good reason for 10% specifically, as a ceiling. Maybe it’s 11%, or 12%, etc. But the current market rate of 25% on average is indeed excessive. Without a ceiling, things do become usurious, fast.
@Steve — Yup, rare bipartisanship–when there is something like this that brings both sides together, we should take it seriously. The status quo is not working for most folks.
@patrick @nsx at FlyerTalk — You each have the same concern–capping interest may cause lenders to ‘want’ to restrict credit. Good news–we already have tools to deal with this–the Federal Reserve has authority to ensure liquidity in the financial markets and to encourage lending in such situations–it won’t be perfect, but they’re pretty good at what they do.
@AC and @George N Romey — ‘Just pay off your cards’ is a simple solution to a complex problem. Most of us here are responsible with our credit, and we do pay off our balances each and every month–I sure do. You need excellent credit to even qualify for many of the premium cards that some of us have and enjoy. However, even if we are responsible, this isn’t about just us, it’s about creating fair rules for everyone.
@Joseph — Bah! Won’t anyone think of the super-rich! Those poor billionaires! /s
Just like @Coolio before, @Gennady repeats the same faux pas, calling those you disagree with stupid or ‘uneducated,’ while ignoring any substance in support or against.
Wow! Anyone have kids in their 20s here? Yes, I put all my kids on some of my credit cards early, but when they went to apply for credit cards on their own after their first jobs, wow! I literally had to send three months of bank statements to some of them. Chase told me “what did you expect—she has no personal credit.” Now, they each have 4-6 credit cards, but the effect of this law would be to tighten credit rules. Wouldn’t have affected me at all, but my kids are very interested in the hobby and even under current rules, I needed to get involved. So, it is not just people who revolve who would be affected.
Hal said this:
“Capping credit card interest at 10% is insane. There is no unsecured debt you can get elsewhere remotely near that amount.”
In fact, this week and last week I have been offered extensive unsecured debt at 8.99% or less. For example, Amex keeps offering to provide me and some relatives unsecured personal loans for 5-6 figure USD amounts at sub-9% APR.
I’m with Gary on this one. The unintended consequences of price controls are always worse than whatever perceived problem that is trying to be addressed.
@Mantis Not necessarily. A positive historical example of price controls is the regulation of natural monopolies like electric utilities. Targeted price controls for monopolistic or oligopolistic sectors have a different effect than broad-based price controls like the one implemented in the 1970s by Richard Nixon. The effect of price controls varies by sector industrial structure.