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.
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.
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’.
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.
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.