Proposals to cap credit card interest rates are gaining traction among politicians from various ideological backgrounds. Representative Alexandria Ocasio-Cortez and Representative Anna Paulina Luna recently collaborated on a bill to cap credit card APRs at 10%, following similar efforts by Senators Bernie Sanders and Josh Hawley to establish a 10% rate ceiling for five years.

Due to escalating interest rates leading to higher delinquencies, the average APR rose to approximately 21.5% by the end of the previous year from 14.7% in 2020, as reported by the Federal Reserve.

While these bills are currently seen as more of symbolic gestures in the political realm, bipartisan support indicates a potential for future action in limiting credit card interest rates. This issue resonates with many voters, especially as half of credit card accounts maintain revolving balances monthly, and 13% only make minimum payments, as per the Consumer Financial Protection Bureau.

There is a debate on finding the appropriate threshold for the rate cap, as some argue that lowering rates could limit access to credit for individuals with weaker credit scores. This scenario might deter overborrowing for some households but could also lead others to seek more costly forms of credit for emergency expenses, like buy-now, pay-later plans.

Determining the optimal rate cap is crucial, as excessively stringent restrictions could have adverse effects. Thus, questions arise about whether a 10% cap is too low or whether thresholds like 25% or 35% would strike a better balance between consumer protection and credit market dynamics.