Center for American Entrepreneurship Urges Administration to Reconsider Proposed Cap on Credit Card Interest Rates

John R. Dearie, president of the nonpartisan Center for American Entrepreneurship, today issued the following statement regarding the Trump Administration’s recent proposal to cap interest rates on credit cards at 10 percent for one year:

“In an effort improve affordability for American households, the Trump Administration recently proposed capping interest rates on credit cards at 10 percent for one year.

The Center for American Entrepreneurship supports policy efforts to address rising costs of living, but capping rates on credit cards would be misguided and counterproductive.  Variable interest rates cover both the fixed costs and risks of extending credit to millions of consumers and businesses.  Capping rates would not make borrowing more affordable, it would restrict credit to only the highest quality borrowers — meaning that millions of Americans would lose access to revolving credit, including many entrepreneurs.

Starting a new business requires money.  In the initial days of a startup, capital needs may be limited to the bare essentials – money to purchase supplies, computers, and other office equipment.  But as new businesses begin to grow, capital needs multiply.  Entrepreneurs need money to pay bills, further develop their product or service idea, research the marketplace, identify and target customers, move out of the garage or dining room into office space, and, hopefully, begin paying initial employees.

Because such costs typically arrive long before the first dollar of revenue, capital and credit are the lifeblood of any new business.  Difficulties in accessing sufficient capital and credit at reasonable terms can delay or prevent the launch of a new business, disrupt the further growth and development of an existing business, or even kill an otherwise healthy and viable business.

For many years, entrepreneurs have relied on credit cards as a convenient and readily accessible source of capital.  Indeed, credit cards are ideally suited for entrepreneurs in a number of ways.  As a form of revolving credit, cards are similar to a line of credit, yet don’t require collateral, a business plan, or months waiting for approval.  They are generally obtainable with very little paperwork, and credit card companies — unlike other providers of capital — don’t care how borrowers spend the money.  Cards are accepted virtually anywhere and are therefore ideal for securing supplies and equipment, paying for meals and travel, and many cards offer cash advances.  Cards can be a comparatively expensive source of capital for entrepreneurs, but higher costs enable the easy access, flexibility, and universal acceptance that entrepreneurs rely on.

Restricted access to credit by capping rates, therefore, would be very damaging to American entrepreneurship – and the economic growth and job creation that thriving entrepreneurship drives.  Instead of imposing harmful caps on credit card rates, policymakers should address affordability by focusing instead on promoting competition, market transparency, financial education, and by enacting policies that increase the supply of critical goods and services, which would naturally lead to meaningful price reductions.”

About the Center for American Entrepreneurship

The Center for American Entrepreneurship (CAE) is a nonpartisan research, policy, and advocacy organization whose mission is to engage and educate policymakers in Washington and across the nation regarding the critical importance of entrepreneurs and startups to innovation, economic growth, and job creation – and to pursue a comprehensive policy agenda intended to achieve a stronger, more resilient, and inclusive U.S. economy through thriving entrepreneurship.

For more information, visit www.startupsUSA.org

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