Cato Daily Podcast
The Punishing Effects of Credit Card Interest Caps
May 13, 2024
Nick Anthony discusses the proposal to cap credit card interest rates, highlighting the drawbacks for credit card users. The podcast explores how credit card rewards are subsidized and the implications of a proposed 36% annual rate cap. It delves into the impact of interest rate caps on credit card debt and the potential limitations on credit availability.
09:43
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Quick takeaways
- Credit card rewards are sustained by higher interest rates on balances.
- Interest rate caps may limit access to credit for marginally creditworthy individuals.
Deep dives
The Business Model of Credit Cards and Consumer Subsidization
The credit card business model operates such that individuals carrying balances subsidize benefits for those who clear their balances monthly. Rewards like airline miles and cashback are sustained by higher interest rates paid by balance carriers. The money made sustains these rewards through fees charged to merchants and varied interest rates. Limiting interest rates could restrict benefits and access to credit for those with fewer options.
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