The Case For Congress Capping Credit Card Interest Rates

Sen. Hawley stands with Madison, Jefferson, and even Adam Smith

Senator Josh Hawley (R-Missouri) has introduced a common sense proposal to cap credit card interest rates at 18 percent. It’s a great idea, and it’s making some of the usual suspects in Washington, D.C. mad. 

The bill solves a real problem: credit card interest rates are absolutely out of control. The average annual percentage rate (A.P.R.) on a new credit card is nearly 25 percent, which is exorbitantly high by all historical standards. Meanwhile, total U.S. household credit card debt just soared above $1 trillion dollars for the first time, and credit card delinquencies are becoming more frequent, now occurring at their highest rate in more than a decade. 

The Lender and his wife. Quentin Metsys, 1514. The Louvre Museum/Wikimedia.

The bill is also very popular. Last year, Democratic data guru David Shor stated that a credit card interest rate cap was the second most popular policy proposal of the 113 his firm had polled the previous year. According to one survey, more than 80 percent of Americans agreed that the government should set some sort of cap on credit card interest rates. Another poll, which tested support for a specific interest rate cap on payday loans, found just 12 percent of Americans opposed to the idea—and of the 12 percent, a large majority said they opposed it because they thought the proposed cap was too lenient and didn’t go far enough. 

But as is often true in Washington, mass popularity among the plebeians can only take a policy so far. The credit card industry is completely entrenched in Washington. Establishment politicians in both political parties are more than happy to carry water for these companies—and they have been for decades. 

President Biden is the most notorious example of this. His largest single political contributor as a Senator was MBNA, a Delaware-based credit card company that also happened to hire his son Hunter Biden right out of law school. (Notably, within two years, Hunter was promoted to senior vice president.) Joe’s resulting fealty to the credit card industry earned him the nickname "the Senator from MBNA."

Les Usuriers. Quinten Metsys, 1520. Galleria Doria Pamphilj/Wikimedia.  

Unfortunately, this isn’t just Joe being Joe; it’s a bipartisan problem. In recent years, Republican Senators have been found arguing that capping consumer loans at an annual interest rate of 36 percent is unjust. Predatory lending enthusiasts, including these Senators, argue that setting any cap, no matter how high, is an attack on the very freedom and liberty upon which this country was founded.  

But this is not the American tradition. The Constitution was not written on the back of a cash advance agreement. Interest rate caps have existed for most of our legal history, and support for them was practically universal at the Founding, when every state capped rates on all loans– usually around 6 to 8 percent. Madison, Jefferson, and Lincoln all supported caps. Even Adam Smith supported them. Nobody in the Anglo-American tradition opposed interest rate caps until Jeremy Bentham, a really bizarre “thinker” who opposed natural rights, argued against altruism’s existence, and ultimately ordered his own body to be mummified, stuffed, and put on display after his death as an icon to himself, decided to publicly defend usury.  

Interest rate caps are also concordant with current law. Congress caps federal credit union credit card rates at 18 percent and caps loan rates to military members and their families at 36 percent. Most states still have interest rate caps on the books, although they were significantly weakened by the terrible Supreme Court precedent set in Marquette National Bank of Minneapolis v. First of Omaha Service Corp that allows one state’s lax regulations to effectively supersede any interest rate caps passed by the other forty-nine states.  

Some have argued that a federal cap on interest rates would harm consumers. Patrick Hedger, executive director of the Taxpayers Protection alliance, suggested on X that Hawley’s bill amounted to a “price control” that would limit “credit availability… to those who need it the most.” 

The Tax Collectors. Marinus van Reymerswaele, circa 1585. Narodny Muzeum in Warsaw/Wikimedia.

Hedger might be technically correct. An 18 percent cap might cause credit card companies to be more judicious in how much credit they are offering, and to whom. 

But consider the status quo alternative: a $10,000 line of credit at 30 percent A.P.R. paid off over ten years will cost a desperate consumer an extra $21,634 in interest. That is a life-destroying amount of debt for someone living paycheck to paycheck trying to raise a family. People “need” access to 30+ percent APR lines of credit in the same way a drug addict “needs” his next hit of fentanyl. Will it provide temporary relief? Absolutely. Will unbearable pain and suffering follow? Inevitably. 

We shouldn’t let predatory lenders exploit people who have fallen on hard times by charging them interest rates so high it becomes nearly impossible for them to ever pay back the principal amount owed. That’s not a fair contract. It’s not just. And it’s incumbent upon Congress to do something about it. 

Jon Schweppe is the policy director at American Principles Project. Follow him on X @JonSchweppe.