Donald Trump keeps trying to microtarget working-class voters, but he’s bidding himself into policy and political dead ends. “While working Americans catch up, we’re going to put a temporary cap on credit-card interest rates,” he told a rally recently in New York. “We’re going to cap it at around 10%. We can’t let them make 25 and 30%.”
That’s a price control on credit. It would be comforting to write off this remark as another of Mr. Trump’s rally improvisations, like references to Hannibal Lecter. But watch the video, and it looks as if Mr. Trump is reading the credit-card policy off the teleprompter.
Mr. Trump’s promised “temporary” 10% cap is lower than the rate that America’s two leading socialists proposed in 2019. A bill from Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez aimed to limit rates on consumer debt to 15%. “Modern-day loan sharks are no longer lurking on street corners breaking kneecaps,” Mr. Sanders said. “They wear three-piece suits and work on Wall Street.”
Yet economics teaches there’s no free lunch. Millions of Americans use credit cards as convenient and ubiquitous payment networks, and they don’t owe interest because they pay off their balances at the end of each month. Debit cards are an alternative. People in a pinch also use credit cards to cover emergencies or financial shortfalls.
The interest rates on credit cards reflect operating costs, including nonpayment. A 10% cap would effectively cut off people with less-than-pristine credit scores. After Illinois capped many consumer interest rates at 36% “all-in APR,” a study in the journal Public Choice said “financial well-being declined” for residents who lost access to short-term, small-dollar loans.
Why do Messrs. Trump and Sanders think it’s helpful to limit credit access and send folks to the pawn broker or leg breaker instead? Card companies might respond by raising fees, which is what happened to free checking after Democrats regulated debit swipe charges in 2010.
Mr. Trump has criticized Kamala Harris for proposing price controls on groceries. “After causing catastrophic inflation,” he told a Pennsylvania rally, “comrade Kamala announced that she wants to institute socialist price controls. You saw that. Never worked before. Never ever worked.”
He’s right, yet Mr. Trump is doing the same on credit cards. It’s bad enough to have a Democratic Party that ignores economics. What’s the point of a Republican Party that follows suit?
The Wall Street Journal
