A government-mandated cap on credit card interest rates removes lenders' ability to price for risk. Consequently, they may stop lending to individuals with lower credit scores, inadvertently forcing these borrowers to seek much worse options like payday or title loans with triple-digit interest rates.

The same banks issuing high-interest credit cards offer substantially cheaper personal lines of credit to customers with identical FICO scores. Despite being a logical tool for consolidating expensive card debt, these products receive almost no marketing, making them largely invisible to consumers.

PNC's CEO explains that even at an average rate of 18%, the net margin on credit cards is only around 4% after accounting for rewards, losses, and funding costs. Capping rates at 10% would turn this margin negative, forcing issuers to exit the business and cutting off consumer credit access.

While many assume high credit card rates cover default risk, actual charge-offs on revolving balances average only 5.75%. This is a significant cost but accounts for less than a third of the typical interest rate spread, indicating that other factors like risk premiums and operating costs are major drivers.

A surprisingly large portion of high credit card APRs covers operating expenses, particularly marketing. Issuers like Amex and Capital One spend billions annually on customer acquisition. This spending is passed directly to consumers, as higher marketing budgets correlate with higher chargeable rates.

A proposed 10% cap on credit card interest rates, while intended to improve affordability, would likely have the opposite effect. This policy would probably force lenders to tighten credit standards to offset lower profitability, ultimately restricting credit access for the very subprime consumers and balance-carriers it aims to help.

Regulatory capture is not an abstract problem. It has tangible negative consequences for everyday consumers, such as the elimination of free checking accounts after the Dodd-Frank Act was passed, or rules preventing physicians from opening new hospitals, which stifles competition and drives up costs.

A government-imposed cap on credit card interest rates would make the business model unviable for most customers due to risk-reward dynamics. Banks would be forced to deny cards to anyone but the lowest-risk individuals, effectively canceling access to credit for the majority of the population.

Affirm's CEO argues the core flaw of credit cards is not high APRs, but a business model that profits from consumer mistakes. Lenders are incentivized by compounding interest and late fees, meaning they benefit when customers take longer to pay and stumble.