Last week, AFSA, along with other associations, signed a letter to U.S. Senate leadership opposing Amendment 2239 to S. 1582, which proposes an all-in annual percentage rate (APR) cap of 10% for credit cards. While this amendment claims to protect consumers, it will have unintended consequences that harm the very people it seeks to safeguard.

Research shows that government-imposed credit cards price controls, such as APR caps, lead to reduced access to credit, particularly for high-risk borrowers. A 10% APR cap would make it far more difficult for millions of consumers to access credit cards, pushing them toward alternative sources of credit that are far more expensive and less regulated, such as payday lenders, pawn shops, and even illegal loan sharks.

Credit cards are a crucial pathway for consumers, especially those who are “credit invisible,” to build a credit history and improve financial inclusion. More consumers are using credit cards to improve their credit scores, and institutions have innovated to make credit more accessible, including for subprime borrowers.

Credit card issuers have also introduced underwriting methods that help consumers manage debt and improve their credit. This has led to fewer delinquencies and a reduction in credit card balances in recent years. These efforts are supported by consumer protections mandated by such laws as the Truth in Lending Act and the Fair Credit Reporting Act, which ensure that credit card companies operate transparently and responsibly.

In short, while rate caps might seem like an easy fix, they are a blunt instrument that disrupts credit markets, reduces competition, and ultimately harms consumers. The 10% APR cap proposed by Amendment 2239 would stifle access to credit for millions of consumers and push them toward far more costly and unregulated alternatives.

AFSA’s goal is to make credit more affordable and inclusive and urges the majority and minority leaders to reconsider this amendment and adopt policies that promote sustainable credit access and true financial inclusion.