Credit card bill will hurt those it's supposed to help

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President Donald Trump has taken many productive steps during his first weeks back in the Oval Office. But supporting a bill to cap credit card interest rates — based on a campaign promise the president made — wouldn’t be one of them.

The odd couple of Sens. Bernie Sanders, the Vermont socialist, and Josh Hawley, a conservative Missouri Republican, have joined forces to craft legislation that would make it illegal for credit card issuers to charge interest rates higher than 10 percent. According to Lending Tree, the average rate in America today is 24.21%.

The reform "is a simple way to provide meaningful relief to working people," Sen. Hawley explained. "Working Americans are drowning in record credit card debt while the biggest credit card issuers get richer and richer by hiking their interest rates to the moon."

No doubt this populist plan will play well in certain circles. But it’s likely to hurt many of those it’s intended to help.

The irony of Sen. Hawley and other Republicans embracing this proposal is that they were quick to lampoon — correctly — Democrats and the Biden administration for floating the idea of federal price controls on food to combat inflation. Yet the credit card scheme is no different. A government-mandated cap on the cost of money is indeed a price control.

Price controls — whether on Froot Loops, eggs, gasoline or currency — create shortages and stifle innovation by disincentivizing production. An arbitrary lid on interest rates would almost certainly result in fewer Americans — particularly those struggling financially — enjoying access to credit.

That may or may not be a good idea. Easy credit can itself trigger financial strain when borrowers fail to exercise restraint and run up debt that buries them deeper in the hole. But credit, when used properly, can also be a lifeline in times of emergency.

"This bill would eliminate access to credit cards," industry leaders wrote to Congress, "for millions of consumers and drive them to sources of credit which are far more costly and less regulated."

Default rates are running at 3%, a 14-year high. If this proposal were to become law, what would be the incentive for banks to issue credit cards to borrowers who don’t have stellar credit?

"Folks who are on the higher side of the risk spectrum, they’re going to be denied outright," Nicholas Anthony, a policy analyst with the Cato Institute, told USA Today. "And that’s where you get into a big problem. The people who need it most are effectively cut out of the system."

That will drive them away from banks to high-rate, short-term payday loan outfits or potentially more sordid lenders. Price controls are a bad idea — even when they’re gussied up as helping "working Americans." They don’t.

(COMMENT, BELOW)

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