The Center Square first published this opinion piece.

When politicians forget their economic history, Americans are doomed to repeat it. 

In 1980, facing an energy crisis, rampant inflation, and an infamous economic “malaise,” President Jimmy Carter imposed artificial limits on bank credit, restricting the types of credit that banks could offer, and requiring lenders to maintain special deposits for unsecured loans. But instead of lowering inflation as hoped, the federal mandates choked-off access to credit, depressed consumer spending, and further hamstrung a struggling economy.

The economy shrank by about eight percent annualized in the second quarter of 1980, while unemployment skyrocketed. Many economists concluded that the well-intended but misguided credit controls had dire economic consequences, and Washington quickly rescinded them.

Fast-forward to 2026. Several sitting U.S. senators, apparently having forgotten the hard lesson of the Carter credit crunch, have proposed their own federal interventions in America’s lending markets. Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Josh Hawley (R-MO), and others have pushed for Washington to cap credit card interest rates at 10%. If they expect similar government meddling to yield dissimilar results, they should get used to disappointment.

Market research – and basic economic principles – warn that such a policy’s unintended costs would outweigh its benefits, however well-intended they may be. When a government-imposed cap prevents lenders from pricing for their assumed risk, they will respond by limiting their exposure. Thus, according to the American Bankers Association, a 10 percent cap on credit card interest would likely result in 74-85 percent of credit card accounts being closed or having their credit lines drastically reduced. That’s a direct hit on an estimated 137-159 million cardholders. 

Estimates vary, but most studies show that artificial interest-rate caps reduce credit availability for those who need it and limit options for lower-risk consumers who may not need the money today but might want it tomorrow. Reports by economists at the World Bank, the American Enterprise Institute, the American Consumer Institute, the Consumer Choice Center, and Unleash Prosperity all confirm that government-imposed interest rate caps push lenders to offset their risk by tightening underwriting standards, reducing credit limits, eliminating rewards programs, and reducing or withdrawing credit from many marginal borrowers. Non-risky borrowers see their perks, rewards, and teaser rates vanish, while riskier borrowers are left paying even higher rates to payday lenders.  

But wait, there’s more. Closed credit accounts and fewer lending options are just the beginning. When politicians and bureaucrats dictate what non-usurious interest rates may govern private loans between willing lenders and willing borrowers, they establish a dangerous precedent. Today’s interest rate caps easily become tomorrow’s loan-term limits and next year’s fixed-fee restrictions. Once Washington gets a taste for economic meddling, it always wants to try more.   

After all, this isn’t the first or even second time that politicos have tried to set credit card rates from the Potomac – and they have always reached for more. When the Biden administration’s Consumer Financial Protection Bureau unilaterally tried to regulate credit card costs through administrative action, it put caps on late fees, restricted other penalty fees, and proposed a host of additional requirements for card issuers. That effort wound up in court where those rules were ultimately vacated as another fine example of regulatory overreach and its slippery slope. 

Americans need access to credit for buying homes and cars, taking vacations, starting businesses, and weathering family emergencies. Federal price controls on consumer credit lines will deny or limit that access for too many – and legislators proposing them should know better. History may not always repeat itself, but it often rhymes. Capping interest rates didn’t work for Jimmy Carter’s economy in 1980, and it won’t work for ours now either. 

Greg R. Lawson is a senior research fellow at The Buckeye Institute.