Credit Card Rate Caps are a Socialist Trap that will Crush Working-Class Americans

Originally published on Fox News.

​At the World Economic Forum in Davos, President Donald Trump called on Congress to cap credit card interest rates at 10%, a policy which Sen. Bernie Sanders already proposed through legislation. There is little doubt these policies are popular — for now. But popularity is no measure of wisdom.

As someone who served as chief economist at the Office of Management and Budget during President Trump’s first term, I find President Trump's turn to the Sen. Sanders economic playbook especially disappointing. That administration’s economic success when I worked in it was built on many free-market principles: deregulation, competition and respect for price signals. Those policies expanded access, lowered costs and delivered strong growth. Embracing price controls now is a rejection of that record. It is borrowing directly from the socialist playbook that Trump once ran against.

Price controls on credit have a long and dismal history, and the Americans who would suffer are lower-income borrowers with imperfect credit histories who need access to credit the most.

The frustration driving these proposals is real. Millions of Americans feel squeezed by inflation, high prices and stagnant wages. But bad policy piled on top of economic pain only makes things worse.
Credit card companies price their products based on risk. When lenders can't charge rates that reflect actual default risk, they stop lending to higher-risk customers.
Consider what a 10% interest rate cap would mean in practice. The average credit card APR currently hovers around 20%, but that masks enormous variation. Prime borrowers enjoy rates as low as 14%, while subprime borrowers pay 25% or more. These higher rates reflect reality: some borrowers default at rates five times higher than others. A 10% cap doesn't eliminate this risk. It merely prohibits lenders from pricing it into their offerings. 
The result? Millions of Americans would find themselves shut out of the credit market entirely.

Read the full piece at Fox News.