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As of January 2026, there is a proposal to cap credit card interest rates at 10% nationwide. The idea is to help Americans struggling with debt. But how lending actually works is complicated, and the numbers suggest the cap could have unintended consequences that end up hurting the same people it’s meant to help. 
 

Why Banks Refuse Credit

Credit cards are different from mortgages or car loans because they’re unsecured, so if someone stops paying, the bank can’t take anything back, there’s no house or car to repossess.

Banks price credit cards based on risk so they don’t lose money.

• First, there’s the basic cost of lending. Banks have to pay interest to people who keep money in savings accounts, around 4 - 5%, and they also have expenses: technology, customer service, and fraud prevention.
• Banks know from experience that borrowers with lower credit scores are more likely to default. Some won’t repay the money at all. To make up for those losses, banks charge higher interest rates to everyone in that higher-risk group.
• If it costs a bank about 8% just to run a credit card program, and the risk of not getting repaid adds another 10%, the bank needs to charge around 18% interest just to break even. If the government limits interest rates to 10%, the bank loses money on every one of those customers.

So banks may stop offering the product, and those with weaker credit could have their credit cards canceled or their credit limits cut to zero because banks can no longer afford to serve them under the cap.

If mainstream credit becomes unavailable, people don’t stop needing money. Instead, many are pushed toward these alternatives, which are far more expensive and far riskier than credit cards, even high-interest ones.

• Payday Loans

These are very small loans meant to cover expenses until your next paycheck. They’re easy to get, but extremely expensive. Instead of charging traditional interest, lenders charge flat fees about $15 for every $100 borrowed for just two weeks. When you convert those fees into an annual rate, it comes out to roughly 400% to 600% APR. Many borrowers end up rolling these loans over again and again, which traps them in a cycle of debt.

• Title Loans

With a title loan, you borrow money using your car as collateral. The interest rates are extremely high around 300% APR. The big risk is that if you miss a payment, the lender can legally take your car. Losing a car can mean losing the ability to get to work, which makes financial problems even worse.

• Black Market Lending

When legal options disappear, some people turn to illegal lenders - loan sharks. There are no rules or limits on interest rates,  no consumer protections, no contracts you can rely on, and enforcement often involves intimidation or violence. 

Critics say that by forcing credit cards to be cheap, the government could end up making them unavailable for low-income borrowers. Instead of helping, this could push people toward much riskier and more expensive lenders.
 

Bottom Line Is

The proposed 10% interest rate cap is a classic case of price controls creating a shortage. When it already costs banks close to 5% just to get the money they lend out, a 10% limit leaves little room to account for risk.

Big banks won’t be the ones hurt the most. They’ll adapt by charging higher annual fees and cutting rewards, especially for wealthier customers who are still profitable. The real harm would fall on the 47 million Americans with limited credit history or low credit scores.

By banning banks from charging rates government is essentially making it nearly impossible to lend to many working class borrowers. Instead of protecting these families, the policy could take away one of their few financial safety nets and push them toward far more expensive options like payday lenders and pawn shops.
 

Devil’s Advocate 

Current interest rates are about 25% in 2026 are a form of legal predatory lending. Banks have enjoyed record breaking profits for years and could easily absorb lower rates by trimming massive marketing budgets and executive bonuses. From this viewpoint, a 10% cap is about ending a debt trap that keeps millions of Americans in a cycle of permanent interest payments.

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