By Margie Salazar
The recently proposed nationwide 10% cap on credit card interest rates may sound appealing at first glance. After all, we all want lower borrowing costs.
However, such a mandate would severely reduce consumers’ access to credit, especially among the most financially vulnerable members of our community.
A hard 10% cap would force financial institutions, including credit unions like ours, to close or reduce millions of credit lines almost immediately. That reduction would shrink access to everyday financial tools and trigger substantial drops in consumers’ credit scores because utilization rates would rise sharply when limits are reduced or accounts are closed. Lower scores make it increasingly difficult for individuals to qualify for auto loans, mortgages or even rental housing, creating a cycle of financial exclusion that can take years to overcome.
When responsible lenders are forced to pull back, consumers don’t stop needing credit. Instead, many turn to payday lenders, auto-title lenders and other high-cost alternative financial services.
These products often carry triple-digit annual percentage rates, steep fees and debt-trap repayment structures that are far more harmful than the responsibly priced credit products offered by credit unions. In attempting to protect consumers, a 10% cap would push many directly into the arms of the most predatory lenders in the marketplace.
Consumers would also lose access to rewards programs funded through interest margins and interchange — benefits such as cash-back, travel perks, and important fraud protections would disappear almost overnight.
It is important to note that credit unions already operate under an 18% cap imposed by Congress, and unlike big banks, we are not-for-profit institutions. Our loan pricing is designed solely to cover operating costs and the real risk of member default — not to generate profits for shareholders. Many members who rely on us for second-chance credit, starter credit or emergency credit options would simply be left without safe alternatives if we could not responsibly price loans based on risk.
A mandated 10% cap would also weaken credit unions financially. A sudden compression of interest margins would reduce capital reserves in the short term. For smaller local credit unions, often the only community-based financial institutions serving underserved neighborhoods, this shock could be especially damaging.
Reduced capital limits a credit union’s ability to lend, invest in technology, maintain staffing and absorb economic volatility. If enough smaller institutions are strained or forced to consolidate, the overall financial ecosystem becomes weaker, less competitive and less resilient. Consumers ultimately bear the burden through fewer choices and reduced access to personalized financial services.
A one-size-fits-all mandate may sound consumer-friendly, but it would do far more harm than good.
Instead of adopting blunt rate caps, policymakers should focus on targeted consumer protections that curb abuse while preserving access to responsible, sustainable and affordable credit from trusted community-based institutions.
Margie Salazar is president and CEO of FirstLight Federal Credit Union in El Paso.
The post Opinion: Why a nationwide 10% credit card rate cap could backfire on consumers appeared first on El Paso Matters.
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