Credit cards have become an essential lubricant that makes our consumer markets in America work in a timely and efficient manner. The plastic cards (now accessible on cell phones) perform an essential function in the American economy, accounting for approximately one third of consumer spending and nearly one quarter of U.S. GDP. Those numbers are growing every year and will continue to as the U.S. economy moves toward cashless transactions.

One idea that could put the industry and U.S. economy at risk of contraction is the 10 Percent Credit Card Interest Rate Cap Act, co-sponsored by Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO). The bill would for five years impose a 10% ceiling on credit card APRs and penalize issuers who violate it by forfeiting all interest on the debt.

A recent analysis published by Unleash Prosperity’s affiliate Unleash Prosperity Now found “the overall impact of caps is to reduce credit availability for higher-risk and marginal borrowers, weaken credit inclusion, and generate downstream economic effects”.

Furthermore, they find consistent results in 10 historical examples of the detriments of interest rate caps. This paper goes one step further in analyzing the U.S. macroeconomic impacts of the proposed rate caps. We examine credit data spanning the years 2015 through 2024, a period that captures two significant stress episodes: the 2018–2019 rate hiking cycle and the COVID-19 shock. The dataset critically omits the Great Recession of 2008–2010, the most severe consumer credit contraction in the post-war era. This creates a selection bias that almost certainly causes the model to understate the true credit risk embedded in lower-tier lending.