10% Interest Rate Cap Will Squeeze Credit Availability, Industry Warns of Rising Risks
David Becker, CEO of First Internet Bank, writes that the 10% Credit Card Interest Rate Cap Act proposed by Senators Sanders and Hawley, while intended to alleviate the pressure of $1.17 trillion in credit card debt, may actually backfire: banks will tighten credit and raise fees, high-risk consumers will be forced to turn to high-risk alternatives like payday loans, and fintech companies will also be impacted. He urges lawmakers to focus on transparency and responsible lending rather than simple price controls.
Editor's Note:David Becker is the Chairman and CEO of First Internet Bank in Fishers, Indiana.
For consumers drowning in credit card debt, the bipartisan push to cap interest rates at 10% may seem like a victory, but as is often the case with price controls, the reality is far more damaging than the rhetoric.
Capping rates at such a level would restrict access to credit, penalize higher-risk borrowers, and drive consumers into more precarious lending environments, while threatening the progress financial institutions have made in expanding credit accessibility.
Independent Senator Bernie Sanders of Vermont and Republican Senator Josh Hawley of Missouri introduced the 10% Credit Card Interest Rate Cap Act (S.381, 119th Congress) as an amendment to the Loan Truth Act. Supporters claim the measure would provide long-overdue relief to those burdened by $1.17 trillion in credit card debt. Although the bill appears to offer a quick fix, it oversimplifies the issue—ignoring the critical role interest rates play in ensuring credit access, balancing risk, and maintaining financial stability across the broader lending ecosystem.
The bill suggests that a comprehensive annual percentage rate (APR) cap would bring relief to hardworking Americans, but in reality, the opposite is true. Banks would compensate for lost interest income by reducing credit supply, raising fees (such as late fees), cutting rewards programs, and introducing higher annual fees, which would actually make borrowing more expensive.
Restricted access to credit would have ripple effects on the financial responsibilities of many Americans. Credit cards are unsecured loans, and banks use interest rates to price risk, especially for subprime borrowers. If the bill passes, lenders would enforce stricter underwriting standards to compensate for risk, effectively excluding consumers with lower credit scores or limited credit histories.
Over time, this issue could push individuals into desperate situations, forcing them to rely on less formal alternatives. Higher-risk consumers would turn to payday lenders, buy-now-pay-later services, or unregulated online lending platforms, which would only further exacerbate their financial vulnerability.
Beyond traditional financial institutions, if the bill passes, its collateral damage could severely impact fintech companies—an industry that was partly founded to serve non-traditional borrowers.
Overall, banks and fintech companies have developed tools that use data to assess risk and improve credit accessibility, but the 10% interest rate cap ignores the actuarial logic in these models. It sets a ceiling on flexibility and could force traditional and digital lenders to reject higher-risk borrowers.
Instead of viewing the issue from a one-size-fits-all perspective, legislators should advocate for transparency and responsible lending standards, especially as the banking industry continues to develop new methods for fair underwriting and risk pricing.
Well-intentioned legislation should not abandon the very people it aims to help. We should focus on strengthening consumer protections, improving financial literacy, and clarifying regulatory rules for fees and disclosures. Let market forces achieve what interest rate caps cannot: expanding credit access under reasonable risk while maintaining fairness.