gotchanewsdaily.com 
Credit card debt is a big part of life for American households — and these days, a bigger part than ever before. It totaled $1.14 trillion in August, a record, according to the New York Fed. The average credit card balance has risen from $4,828 to $6,329 since 2021, according to data from TransUnion. Even adjusted for inflation, that’s an increase of over 10 percent. And the interest rate on that debt makes servicing it an unusually painful obligation: It has risen by roughly seven percentage points since August 2021, from an average of 14.5 percent to 21.5 percent.
That’s a big dent in household budgets that are already hurting from inflation. And so it was probably only a matter of time before a presidential candidate tried to turn this into a campaign issue: At a Sept. 18 rally in New York, former president Donald Trump told the crowd, “While working Americans catch up, we’re going to put a temporary cap on credit card interest rates.” He promised that interest rates would be held down to roughly 10 percent.
In theory, this would save a typical cardholder some money every month. In practice, however, it would be disastrous. The impact of a plan like Mr. Trump’s would be to worsen the plight of debt-strapped consumers. Indeed, the probable counterproductive effects are one reason similar proposals got little or no traction in Congress when populist lawmakers such as Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) on the left and Sen. Josh Hawley (R-Mo.) on the right floated them. And since it’s generally the states that regulate financial matters such as credit card interest rates, imposing the kind of interest rate cap Mr. Trump says he wants would require a new federal law.
Speaking of laws, in economics there’s a nearly universal one: Supply curves slope downward, which means that, when prices are high, suppliers rush into the market, but as they fall, many suppliers withdraw or concentrate on their most profitable product lines. There are exceptions to this rule, but they are few and far between. And consumer finance is not one of them. When you restrict the price of credit, which is all the interest rate is, the supply of credit falls. And supply shrinks especially sharply for the riskiest borrowers. Strict caps on interest rates might benefit cardholders with low balances and excellent credit scores (though banks might try to restore their profit margins by charging them higher annual fees or withdrawing other perks). But borrowers with the spottiest credit histories, who pose a higher risk of default, would be the first to find their credit limits lowered — or their cards canceled altogether.
In short, this supposed help for the little guy would disproportionately harm consumers of relatively modest means. The only thing worse than expensive credit is no credit at all. And that is what they would wind up with. When struggling families can’t tap credit cards for emergency expenses such as car repairs or utility bills, they can be forced to use alternative sources of credit, such as pawnshops, that offer money on even less attractive terms than credit card companies.
The president cannot do much about the cost of borrowing money except to counsel voter patience as the Federal Reserve finishes getting inflation and interest rates down, which it is doing.
But there are some things our next president could do to make the problem worse. Mr. Trump keeps proposing them. It’s not just the cap on interest rates but also his promises of haphazard tax cuts. Along with extending all the tax cuts he signed in 2017, he has offered to stop taxing tip income, Social Security benefits and overtime and to restore full deductibility of state and local income taxes. Taken together, these proposals would cost trillions, which the federal government would probably end up borrowing. The Penn Wharton Budget Model estimates that Trump’s campaign promises would increase the deficit by more than $4 trillion over the next 10 years.
When the federal government borrows, it competes with private borrowers for a limited pool of credit; other things being equal, that drives up interest rates. If Mr. Trump actually wants to help families who are struggling with credit card debt, the best thing he could do is to put forward a realistic plan to get federal debt under control. At the very least, he can stop making superficially attractive proposals that would actually make their lives harder.
