Stephen Moore: Price controls will deny millions of Americans credit cards

Op-ed views and opinions expressed are solely those of the author.

There’s a famous scene in the movie “The Graduate” in which a young Dustin Hoffman receives this one-word bit of career advice from a businessman: “plastics.”

He wasn’t talking about credit cards, but he might as well have been. Back in the 1960s, only about half of Americans had credit cards. Today, about 90% of us do. It’s what I call the democratization of credit.

This revolution in the way we pay for things benefits everyone: shoppers, retailers, online companies, banks, recordkeepers, and so on.

It’s no exaggeration to say that credit cards are the grease that makes the great American economic engine run smoothly.

Today, we increasingly tap our phones at checkout lines rather than swipe a plastic card. All told, one of every three consumer purchases today is made with a credit card. I’ve noticed lately that stores now have signs that read, “Sorry, we don’t take cash.”

But now some politicians in Washington won’t leave well enough alone. In order to make things “more affordable,” they want to impose price controls on how much credit card companies charge merchants. Even worse, they want to put an interest rate cap of 10% on late credit card payments.

I understand the impulse of lowering interest penalties. Americans are still feeling the sting of the Biden inflation years and now higher energy prices due to the Iran conflict.

But good intentions cannot override the laws of economics. In a recent analysis conducted for Unleash Prosperity Now — based on rigorous research and a sweeping industry survey covering roughly 75% of the U.S. credit card market — we found a 10% rate cap would not lower costs for consumers. It would eliminate access to credit for tens of millions of them.

A 10% interest rate cap would result in more than half of all open credit card accounts being closed or having their credit lines drastically reduced. We’re talking about more than 100 million cardholders losing easy access to credit.

Especially vulnerable are the one-third of lower-income American adults with subprime or near-prime credit scores — especially younger workers, people rebuilding after a financial setback, or those who temporarily lose a job.

For many of these families, a credit card isn’t a luxury. It’s how they cover a car repair, a medical bill, or groceries at the end of a tight month. The Federal Reserve’s own data shows that 37% of American adults couldn’t cover a $400 emergency expense from savings alone. A credit card is their safety net.

And it’s not just subprime borrowers who’d get hurt. Our study finds that many prime borrowers who use their cards responsibly would see their lines of credit cut under a 10% cap.

Our study found that when Illinois imposed interest rate caps in 2021, access to credit cards for low-credit-rate households fell by more than one-third.

Even the “compromise” position of a 15%-to-20% rate cap is problematic. Our study finds millions of families would lose credit card access or face lower credit limits, especially because interest rates have edged upward as of late.

What is needed is better financial literacy in America. Credit cards aren’t meant for a “buy now, pay later” mentality. (Who do we think we are? The federal government?) The high fees are meant as a deterrent to running up unpaid bills. The credit card companies mostly LOSE money when bills aren’t paid on time.

There’s an old saying: If something isn’t broken, don’t fix it. Let the market work. There’s plenty of free-market competition here: four major credit card companies, and scores of banks issuing them. Let the market decide, and let the politicians deal with their own unpaid bills: the $40 trillion national debt.

Stephen Moore is a former Trump senior economic adviser and the cofounder of Unleash Prosperity, which advocates for education freedom for all children.

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Stephen Moore

Stephen Moore is an economics journalist, author, and columnist who served as the senior economics writer for the Wall Street Journal editorial page and as member of the Journal's editorial board.