The Not-So Hidden Costs of “Consumer Relief” Price Controls

Experience is life’s great teacher. And experience shows that the good intentions of price controls do not match the intended real-world results. To avoid increased costs and restrictions on businesses and consumers, lawmakers should remember that price controls will only harm the very American consumers they are meant to help.

For example, New York City rent control and heavy-handed regulation have led to nearly 50,000 units in the city sitting empty and many others in disrepair at a time when the average rent in NYC has risen to more than $5,600.

The price controls on oil and petroleum products in the U.S. in the 1970s led to shortages, supply disruptions and long lines. Socialist countries like Venezuela have implemented price controls that result in scarcity of goods and emergence of black markets.

Price controls don’t work. 

Given what we know, it’s clear that President Trump’s recent proposal to cap credit card interest rates at 10 percent would unintentionally harm consumers. While it appears to make borrowing more affordable, a hard limit on rates could change how lenders operate and who they are willing to lend to. Instead, we should let the free market work as intended.

For example, if this rate cap were to go into effect, small businesses, people with lower credit scores, younger credit histories, or inconsistent incomes could lose access to credit cards,which are often a lifeline for managing cash flow or handling unexpected expenses. Limiting access to credit could also make it harder for entrepreneurs to take risks and expand their business operations. Instead, entrepreneurs and consumers could be forced to turn to more costly and less regulated alternatives.

Even borrowers with strong credit would feel the impact. As lenders move to offer less credit, they would seek to replace that lost revenue, likely through higher annual fees, lower credit limits and diminished promotional offers and rewards programs. These are the very benefits that many American consumers rely on for everyday expenses like groceries, gas and travel.

If President Trump’s rate cap proposal was implemented, it’s estimated that those with a credit score below 740 — nearly nine out of 10 people with a credit card — would lose credit access altogether.

President Trump’s proposal to cap credit card interest rates at 10 percent has also been enthusiastically endorsed by Socialist and Democratic congressional allies. On the other side of the aisle, many GOP lawmakers, including Senate Majority Leader John Thune (R-SD) and Senator Thom Tillis (R-NC), have warned that a strict cap could cut off access to credit for millions of Americans.

Americans for Free Markets (AFFM) remains committed to bolstering free market principles and advocating for the well-being of American consumers. AFFM Executive Director David Ibsen issued the following statement on these recently proposed price control policies:

“Price controls are not the solutions to America’s affordability crisis. Limiting government overreach and allowing our free markets to work as intended are the answer. Mandating a universal interest rate limit could force lenders to terminate credit access with millions of American families that rely on credit cards for everyday expenses and emergencies. Price controls like this do not make credit cheaper — they make it more difficult  to obtain.” – AFFM Executive Director David Ibsen

While rising consumer debt and financial stress are real challenges, a strict interest rate cap is not the solution. A market where lenders have an incentive to compete freely encourages responsible lending and gives consumers more opportunity to access credit. For example, existing competitive market forces have resulted in wide variety of credit card options, including many with 10 percent or lower APR introductory rates for significant periods of time. More competition, not less, is what working families and business owners need.

We thank President Trump for prioritizing affordability. We encourage Congress and the administration to consider the negative impact of government-mandated price controls that harm consumers and to instead foster economic growth and prosperity for American businesses and families through free market policies.