By: Shatha Kalel
The debate over credit card interest rates in the United States has returned to the forefront as household debt reaches historically high levels. Total credit card debt has exceeded one trillion dollars, while the average interest rate has reached about 22 percent, making consumer debt a structural economic problem rather than a temporary financial strain. In this context, former U.S. President Donald Trump’s proposal to cap credit card interest rates at 10 percent for one year highlights the ongoing tension between consumer protection and financial sector stability.
From a macroeconomic perspective, the rise in credit card debt reflects broader pressures on household incomes. Stagnant real wages, rising living costs, and economic shocks such as government shutdowns and job instability have pushed many households to rely on revolving credit to cover basic expenses. As interest rates increase, these short-term loans quickly turn into a long-term financial burden, as illustrated by borrowers’ experiences where debt escalates once income becomes unstable.
Supporters of the interest rate cap argue that it could serve as a direct tool for financial relief by increasing disposable income and easing pressure on household budgets. Studies suggest that saving up to $100 billion annually in interest payments could have a tangible stimulative effect on the economy, particularly by supporting consumption among low- and middle-income households. From this viewpoint, reducing interest costs could strengthen household economic capacity rather than weaken it.
In contrast, banks warn of unintended consequences. Interest income is a core component of credit card profitability, and imposing a cap could reduce access to credit, scale back rewards programs, or lead institutions to offset losses by raising fees elsewhere. Economically, this raises concerns about tighter lending conditions, especially for higher-risk consumers who depend on credit cards to manage temporary liquidity gaps.
The key economic question remains whether such a policy would redistribute costs more fairly or simply shift them from one party to another. While banks argue that lending would decline, critics point to strong profit margins and significant non-interest revenues in the credit card market. If financial institutions respond by cutting operational costs rather than restricting credit, the overall outcome could be positive in terms of economic welfare.
Ultimately, a temporary cap on interest rates would not be a complete solution to the U.S. debt crisis. The problem requires deeper structural reforms, including income stability, stronger consumer protection, and fair alternatives to high-cost credit. Nevertheless, the proposal reflects a growing recognition that unchecked consumer debt is not only an individual burden but also a risk to overall economic stability. The open question is whether political pressure can overcome the influence of the financial sector and turn this idea from debate into actual policy.
Economic Studies Unit – North America Office
Center for Linkage Studies and Strategic Research