Market-Driven, Risk-Based Credit Card Pricing Works: Price Controls Would Disrupt Borrowing and Lending

A U.S. presidential candidate promised to temporarily impose price controls on credit card rates to 10%. Although Javelin has no opinion on the outcome of presidential politics, the price control pledge warrants discussion because of the potentially adverse lending impact on the U.S. market. If such a mandate were to proceed, the change would likely require an act of Congress rather than a presidential order. The move would disrupt capital markets because investors would lose confidence in revenue continuity from lending contracts. If credit card contracts could be nullified, the expectation would be that auto loan contracts, personal loans, and mortgages could also be vulnerable. 

This Javelin Strategy & Research impact note discusses the theoretical question of what would happen if credit card rates become a political subject, what issuers would need to do to protect the $4 trillion that flows annually through U.S. credit cards and the $1.3 trillion owed by consumers who carry their debt forward each month. It also explains the impacts on merchants and the consumer lending ecosystem. The report illustrates that lenders would be better served by issuing credit cards to only the top 21% of the U.S. population rather than the 221 million consumers who represent the spectrum of borrowers and potential borrowers in the United States.