How to Shrink Credit for the Poor

Like Bernie Sanders and AOC, Trump wants to fix prices on credit cards.

WSJ editorial. Excerpts:

"Credit-card rates are set by markets. They are based largely on the Federal Reserve’s benchmark interest rate and borrower risk. Restricting rates will limit access to credit for lower-income Americans. That’s what price controls do: They limit supply."

"The average annual percentage rate (APR) rose to 24.9% from 19.3% between 2021 and 2024 as the Fed raised interest rates to control inflation. The average APR has since ticked down to about 23.8% after the Fed cut rates last year."

"Rates on credit cards are higher than on auto and home loans because they aren’t secured by property."

"Those with lower credit scores are charged higher rates to compensate for their greater risk of default. Rising delinquencies have contributed to higher rates. About 12.4% of credit-card balances were severely delinquent in last year’s third quarter, about the same as in the 2008-09 recession."

"Capping rates at 10% would inevitably force issuers to slash rewards and curtail credit. The latter is what happened after Democrats in 2009 restricted the kind of fees that credit cards could charge and when they could raise rates. A paper by the Philadelphia Fed concluded the 2009 law “likely had an adverse effect on non-prime borrowers.”"

"Studies have also found that lenders restricted credit in states like Arkansas and Illinois after they capped interest rates."

[people then] "may turn to payday loans that charge even higher rates."