The weird bipartisan alliance to cap credit card rates is onto something | Carter Dougherty

American consumers and small businesses are fed up with the cost, and two U.S. senators have responded.

U.S. Sens. Bernie Sanders, I-Vt., and Josh Hawley, R-Mo., truly strange political bedfellows, recently proposed a 10% cap on credit card interest rates. President Donald Trump has championed the idea, too.

An interest cap absolutely has its place in consumer protection. But we also must address the underlying structure of this market.

The credit card business in the U.S. is not a free market with robust competition. Instead, an oligopoly of dominant banks issue them. JPMorgan Chase, Bank of America, American Express, Citigroup and Capital One together account for about 70% of all transactions. We also have a duopoly of networks: Visa and Mastercard, which process more than 80% of those transactions.

The results are higher prices for consumers who use credit cards and the businesses that accept them. Consider the difference between borrowing benchmarks, such as the prime rate, and what you pay on your credit card. That markup has been rising steadily over the last 10 years and now stands at 16.4%. 

If you are a small business owner, the situation is equally grim. Credit cards are a major source of credit for small businesses, at an increasingly high cost. Businesses also suffer from the fees Visa and Mastercard charge merchants on customer payments. Those fees nearly doubled in five years, to $111 billion in 2024, according to the Merchants Payments Coalition. Largely passed on to consumers in higher prices, these charges often rank as the second- or third-highest merchant cost, after real estate and labor.

In other industrialized countries, the simple task of moving money — the basic function of Visa and Mastercard — is much less expensive. Consumer credit elsewhere in the world also comes with greater competition and tougher regulation.

Now Sanders, Hawley and other American leaders want caps on interest rates for credit cards. A handful of states already limit interest rates. Texas imposes a 10% cap on many loans.

Congress in 2006 chose to protect military service members via a 36% limit on interest. In 2009, it banned an array of sneaky fees designed to extract more money from card users. Federal credit unions cannot charge more than 18% interest, including on credit cards. Brian Shearer of Vanderbilt University’s Policy Accelerator for Political Economy and Regulation makes a persuasive case for capping credit card rates for the rest of us, too.

The bank lobby claims any regulation will only hurt the people we are trying to help. But credit still flows to soldiers and sailors. Credit unions still issue cards. States with caps still have functioning financial systems. And the 2009 law Congress passed convinced even skeptical economists that the result was a better market for consumers.

Banks and card networks may worry about profit. But lawmakers have no compelling public policy reason to protect that. Major banks have profit margins that exceed 30%. Visa and Mastercard average a margin of 45%. Meanwhile, consumers face $1.3 trillion in debt. And retailers squeeze by with a margin around 3%. Grocers make do with half that.

The market won’t fix what’s wrong with credit card fees, because the handful of businesses that control it are feasting at everyone else’s expense. We must liberate the market from the grip of the major banks and card processors and restore vibrant competition. Harnessing market forces to get better outcomes for consumers, in addition to smart regulation, is as American as apple pie.

Fortunately, Trump has endorsed — via social media — bipartisan legislation, the Credit Card Competition Act, that would crack open the Visa-Mastercard duopoly by allowing merchants to route transactions over competing networks. Here’s hoping he follows through by getting enough congressional Republicans on board.

That change would leave the megabanks still controlling the credit card market. One approach would be consumer-friendly regulation of other means of credit, such as buy-now-pay-later tools or innovative payment applications, by including protections that credit cards enjoy. Ideally, Congress would cap the size of banks, something it declined to do after the 2008 financial crisis, to the enduring frustration of reformers who sought structural change. Trump entered the presidency in 2017 calling for a new Glass-Steagall, the Depression-era law that broke up big banks, but he never pursued it.

American voters are groaning under the weight of credit card debt and a cascade of junk fees from other industries. Populist ire at corporate power is rising. The race between the two major parties to ride that feeling to victory in the November midterm elections has begun. A movement to limit the power of big banks could be but a tweet away.