Many Americans support Donald Trump's presidency because they see him as a bulwark against a world bent on implementing socialism, wokeness, and the abandonment of traditional American values.
Despite a media hellbent on his destruction, impeachment, and multiple assassination attempts, he has stood firm defending American jobs, American sovereignty, and American capitalism in a world where his political opponents are embracing globalist agendas that prioritize international institutions over national interests. To his supporters, Trump embodies resistance to a cultural and economic transformation that threatens the very foundation of the American experiment.
This makes his recent proposal to cap federal credit card interest rates more bewildering.
President Trump is ending inflation and turning the economy around, not by adopting socialist policies, but by rejecting them. But this cap is an embrace of the very socialist price controls that conservatives have spent decades warning America about.
Socialism should be rejected whether it is advocated by Alexandria Ocasio-Cortez (D-NY), Bernie Sanders (I-VT), or, even President Trump.
Price controls have a dismal track record throughout history. From former President Nixon's wage and price controls in the 1970s to rent control in cities across America, the results are always the same. When the government artificially suppresses prices below market rates, supply contracts, quality deteriorates, and the most vulnerable consumers are harmed.
The economic principle is simple: if you set a product’s price below what the market will bear, providers will either exit the market or find ways to recoup their losses through charging consumers more in other areas.
Credit cards are no exception to the law of economics. In fact, if you want to make it harder for Americans to have access to credit, price controls are key. One of the most amazing features of credit cards is that practically every American can get a “loan” anytime they decide without needing to be a titan or influential figure in the community. In the late 19th century and early 20th only the elites had this kind of control over credit access.
Price controls threaten this very democratization of credit access.
On Tuesday, Speaker Mike Johnson warned about exactly this.
“One of the things that the president probably had not thought through is the negative secondary effect; they would just stop lending money, and maybe they cap what people are able to borrow at a very low amount," he said.
Banks price interest rates based on risk, administrative costs, and the reality that a significant percentage of cardholders’ default on their obligations. Close to 5% of credit card holders never repay their debt, according to the Federal Reserve.
A government-imposed 10% cap would force banks to dramatically restructure their credit offerings. Millions of Americans with lower credit scores would simply lose access to credit altogether because banks could no longer afford to take the risk of serving their debt.
Americans living paycheck to paycheck who occasionally rely on credit cards for emergencies would have their applications denied. Others would face higher annual fees, lose popular rewards programs, or adopt new charges designed to offset the government-mandated interest rate losses.
At his core, President Trump is a businessman. If the State of New York, where the president built his empire, suddenly said that apartment owners can't make more than a 10% profit on their units, he would implicitly understand the implications of such a policy. Credit cards are no different.
Banks are not charities. If they cannot price risk appropriately, they will simply refuse to extend credit to riskier borrowers. The policy would essentially tell Americans with challenged credit histories: "The government cares so much about you that it's ensuring you can't get credit at all."
Illinois imposed a rate cap a few years ago, and everything described above happened.
As pointed out by renowned conservative economist Steve Moore, President Trump’s former economic adviser, in a recent report for his new nonprofit, the Committee to Unleash Prosperity:
A survey of nearly 700 subprime borrowers, conducted nine months after the legislation was enacted, revealed startling impacts: “Roughly half of all survey respondents indicate that they are not confident that they can receive a personal loan from their bank at any time.” Moreover, loans were taken out to pay utilities, consolidate debt, make car loan payments and car repair payments, and make rent/mortgage payments. The survey also showed that 39 percent of respondents saying their financial well-being had declined.
When asked how their financial well-being had been impacted since their previous lender stopped offering loans in Illinois, 49 percent of the respondents with annual incomes below $50,000 replied that their financial well-being had declined. Half of all respondents said that because of curtailed lending, they had to pay bills late and nearly one-third said they had to borrow money from family and friends, were contacted by a debt collector, and reduced everyday expenses.
Trump's supporters backed him precisely because he promised to govern differently from the socialist left. They trusted him to defend capitalism rather than adopt his opponents' tactics.
A federal credit card interest rate cap is Alexandria Ocasio-Cortez's playbook wrapped in a MAGA red hat. For the sake of ensuring that the American rank and file can continue having credit access, this idea will be rejected and it should be.
Horace Cooper is a legal commentator and appears frequently on Fox News and other networks. He taught constitutional law at George Mason University and is an author.
