This Chart Explains Push to Cap Credit Card Interest

Sen. Bernie Sanders, the progressive Independent from Vermont, is backing President-elect Trump’s campaign vow to cap credit card interest rates at 10%. (Fox News)

The scale of the problem: Per a new report from the Federal Reserve Bank of New York, U.S. credit card debt has reached a record $1.17 trillion.

Related: According to the Federal Reserve, credit card interest rate margins — the amount added to the cost of providing the credit — hit all-time highs late last year.

 An analysis by Heritage Foundation research fellow Joel Griffith: Capping credit card interest rates would backfire by reducing access to credit, particularly for lower-income and high-risk borrowers, while failing to address the underlying economic challenges driving debt and financial instability.

• An 18% interest rate cap would price nearly 80% of subprime borrowers (those with poor to fair credit scores) and many prime borrowers out of the market.

• Credit card issuers have seen profits from their loans average below 2% in recent years, and a cap below the cost of delivering credit would force lenders to stop issuing credit to high-risk customers.

• Similar price controls, such as mortgage rate caps in the 1980s, led to a financial meltdown as lenders rolled back credit, and defaults surged, causing systemic harm to borrowers and the economy.

Griffith:

Bubba’s Two Cents

A lot of mainstream economists and traditional Republicans roll their eyes at ideas from folks like Bernie and Trump, and sure, I get it — these policies can have real downsides and unintended consequences. But when people are drowning in debt and facing sky-high credit card rates, it’s easy to see why Bernie and Trump-style messaging hits home. If you’re just telling people “that won’t work,” you’d better have an alternative to offer.