WSJ Editorial Board: Hawley-Sanders Interest Rate Cap Bill Would Restrict Consumers’ Access to Credit
WASHINGTON, D.C. – The Wall Street Journal Editorial Board recently penned a piece in response to misguided legislation introduced by Senators Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) that would place government price controls on credit cards highlighting research and data that shows how access to credit would be restricted if the proposal were to become law:
“A paper by the Philadelphia Fed concluded the [2009 CARD Act] “likely had an adverse effect on non-prime borrowers.” The same would be true of the Hawley-Sanders bill. Some might have to turn to payday loans, which carry higher fees. Mr. Trump won the election by promising to renew broad prosperity. A cap on interest rates would contribute to the opposite.”
To read the full editorial, click HERE or see below.
A Josh Hawley-Bernie Sanders Mind Meld
By The Editorial Board
The Wall Street Journal
Feb. 5, 2025
These are confusing political times on the right, as self-styled conservatives adopt left-wing economics. The latest example is the mind meld between Missouri Sen. Josh Hawley and Vermont socialist Bernie Sanders on a bill to cap credit-card interest rates at 10%.
“Working Americans are drowning in record credit card debt while the biggest credit card issuers get richer and richer by hiking their interest rates to the moon,” Mr. Hawley says in a Monday press release. “It’s not just wrong, it’s exploitative.” Mr. Sanders must be smiling.
The Republican Senator says President Trump endorsed a 10% interest rate cap during the campaign, and now’s the time to deliver. Mr. Trump floated this sop to voters seemingly without giving a thought to the negative consequences. But Mr. Hawley purports to be a serious thinker, so why hasn’t he?
Remember when economists and Republicans criticized Kamala Harris for proposing price controls on groceries? Well, a cap on interest rates is a price control on credit. When you put a price control on something, you are asking for less of it. Apologies for this lesson in Econ 101, but that’s where we are with the political class these days.
It’s true that credit-card rates have climbed over the last decade. This is what happens when inflation rises and the Federal Reserve raises interest rates in response. The average monthly annual percentage rate on new credit cards is 24.3%—meaning that someone will pay $20.25 in interest a month on a $1,000 unpaid balance.
A 2022 paper by Federal Reserve Board staff found that card issuers in recent years have also steered more card revenue into consumer rewards like travel miles. It noted that banks are originating “credit cards to riskier borrowers who paid higher interest rates.”
Credit card delinquencies have also increased over the past couple of years, so banks are charging higher rates to compensate. Delinquency rates are now roughly the same as in early 2009. People typically prioritize payments on mortgages and auto loans over unsecured debt, which is why credit cards carry higher rates. Yet credit-card profits have remained relatively stable over time.
In other words, credit-card issuers aren’t getting “richer and richer.” They’ve adjusted rates to compensate for increasing costs and customer risk. Capping the interest rate at 10% would render most credit cards unprofitable. Issuers might try to compensate by charging higher fees. But the 2009 CARD Act restricts the kinds of fees issuers can charge.
The result of that law is instructive. Card issuers responded by raising rates and reducing credit to non-prime borrowers. A paper by the Philadelphia Fed concluded the law “likely had an adverse effect on non-prime borrowers.” The same would be true of the Hawley-Sanders bill. Some might have to turn to payday loans, which carry higher fees.
Mr. Trump won the election by promising to renew broad prosperity. A cap on interest rates would contribute to the opposite.
