Let’s not beat around the bush: Credit card interest rates are absolutely nuts. They’ve been floating around a 30-year high for months, with Federal Reserve data placing the average U.S. rate at just under 21%. There are plenty of us who’re paying a whole lot more than 21%, too.
That’s why President Donald Trump is now pushing to introduce a 10% cap on credit card rates.
Last week, Trump called for a one-year limit on interest rates starting Jan. 20. And believe it or not, this isn’t a partisan issue. Sen. Bernie Sanders has been trying to get this one over the finish line for a long time.
In theory, this all sounds great. A legislative cap would surely save consumers money while simultaneously stimulating credit activity, right? Well, not according to everyone.
Enter billionaire hedge fund manager Bill Ackman.
In a since-deleted X post from Friday, Jan. 9, Ackman wasted no time rejecting the president’s idea — calling it a “mistake” that would lead to millions of people getting their cards canceled. So, who’s right and who’s wrong here?
This isn’t just some billionaire staring contest. Ackman’s stance definitely touches a raw nerve in financial markets when it comes to risk and the factors that really determine interest rates. So, let’s try to unpack all of this.
Why Are Credit Card Rates So High in the First Place?
Before we dive right into Ackman’s argument, it’s worth taking a step back and looking at the economics behind credit card interest. Contrary to popular belief, rates aren't arbitrary.
We’ve already touched on where rates are currently. In 2024, commercial interest hit its highest point in decades — and the numbers haven’t gone down by much since then. So, why do rates continue to rise?
A lot of it boils down to default risk. When a borrower stops making loan payments, lenders can repossess their car or house as a means of repayment. That ability to recoup potential losses insulates lenders. But credit card companies don’t have that protection. Credit cards aren’t backed by collateral, and so default risk is a key price driver when consumers get allocated credit rates.
Rates are also heavily impacted by the cost of borrowing. Lenders have to borrow money just like you and me, whether it’s from wholesale markets, securitization, or depositors. The cost of borrowing has been historically high, and it inevitably trickles down to consumers in the form of higher interest rates.
The good news here is that since the Fed started whittling away at its base rate, borrowing has gotten cheaper. Right now, it looks like credit rates are following suit and beginning to go down, too (just very slowly).
But you’ve got a couple of other variables at play.
The operational costs for credit providers are astronomical. These large companies must manage millions of accounts, comply with international regulatory requirements, detect fraud, and provide customer service. Those operational costs are built directly into your credit card’s APR.
And finally, there are rewards.
Credit card companies love to attract new customers with reward structures that offer 3% or more in cash back, airline miles, free meals, and everything in between. From a customer’s point of view, it’s all just “free stuff.” But it’s not free to your credit card company. In fact, it’s actually pretty costly, and your provider will either treat it like a loss leader they’ve got to absorb or not-so-secretly bake the cost of your rewards right back into your interest rate.
Long story short: There are a lot of moving parts that make up credit card rates. If you try to cap interest at 10%, you’re asking credit card providers to ignore all of these moving parts without addressing the underlying costs or risk. That’s why Bill Ackman thinks it’s a bad move.
What Did Ackman Say (And Why Does It Matter)?
Ackman is well-known on Wall Street for speaking his mind, and he didn’t mince words in reacting to Trump’s apparent mandate to start capping commercial rates. In fact, his original post on X said that capping rates is a mistake that totally misunderstands how credit pricing, risk, and competition work.
To be honest, he’s right.
If the government were to force an artificial limit on interest rates, it wouldn’t reduce the sky-high default risk that credit card companies face every day. It’d just reduce the incentive for lenders to extend credit to people.
Instead of artificially lowering rates, Ackman argues that competition is the only path forward. By taking steps to make the credit card vertical more competitive, it would encourage banks and challenger fintechs to outprice one another, driving rates down organically.
It’s worth noting Ackman quickly deleted his blunt post on X and replaced it with a far gentler one “commending” the president for taking an interest in this issue. But even after all that flattery, Ackman didn’t back down on the core principle of his original argument. He reiterated that capping rates at 10% will mean credit card companies lose the ability to price subprime credit risk. As a result, he thinks millions will have their cards canceled.
And he’s not the only one who thinks a rate cap like this would backfire (no matter how well-intentioned it might seem).
Why Capping Rates at 10% Could Hurt More Than Help
Ultimately, this is a classic free-market debate. If you cap the price of a product that’s based on risk and the cost of capital, credit card companies will stop participating because they know they’re going to lose money. That means supply diminishes, and that has very real consequences for ordinary consumers.
First and foremost, it means credit is harder to access. If lenders are unable to price risk above 10%, they’ll just have to stop lending to high-risk consumers, full stop. This means higher rejection rates, more intensive underwriting, and limited access for individuals with thin credit histories.
Chances are, the customers who most need access to credit would be the ones who end up getting excluded.
A legal limit on rates would also make your rewards more expensive. If credit card companies can’t make money on interest, they’d have to start charging more in fees to compensate for the lack of income. That would mean a new fee-based structure for many “free” cards and a scaling back of the costly rewards programs that providers use to incentivize spending.
Yet the biggest issue with Trump’s 10% cap wouldn’t be the fact that you’re earning fewer air miles. It’s the fact that you'd only be reallocating pain.
When regulation limits how credit card companies get paid for risk, they’ve got no choice but to start pricing it in elsewhere. That means higher late fees, stricter penalties for missed payments, and tighter limits that make credit less accessible. Overall, the high cost of credit is unlikely to decrease.
A 10% interest rate cap sounds fair. It makes for a great headline, and it’s easy to explain. Unfortunately, America’s credit landscape and the economics that underpin it aren’t that simple. Without structural reform, capping rates would be a distortionary price limit that hurts markets.
That’s why seasoned investors like Bill Ackman keep speaking out against this idea — and with any luck, lawmakers will listen. Otherwise, things could end up getting a lot tougher for consumers.
