Since the nation was founded, populist politics have resulted in poor financial policy in the United States. The ideology helped give rise to branching restrictions that created a weak banking system, one filled with 25,000 local banks just prior to the Great Depression. It also gave us extensive price controls (such as Regulation Q) that contributed mightily to people pulling their money out of banks in the 1970s and the Savings and Loan crisis.

Fast forward to 2023 and it seems Congress is poised to carry on the tradition.

Senator Josh Hawley (R‑MO) wants to impose an 18 percent interest rate cap on all credit cards, and Senator Dick Durbin (D‑IL) wants to extend price controls and routing mandates to the credit card market. They’re even trying to fast-track the legislation by attaching their bills to a so-called “must pass” spending bill.

In 2010, Durbin was the driving force behind debit card price controls and routing requirements, and now Senators Roger Marshall (R‑KS) and J.D. Vance (R‑OH) want to help with the expansion. The senators are doing their best to turn this issue into a Wall Street vs. Main Street fight, and Marshall has gone so far as to claim that card rewards programs are “for rich people.” In practice, though, the Senators’ position enhances their own power. In the Case of Durbin’s bill, their position takes the side of retail trade associations over the side of banking trade associations (and consumers).

For his part, Hawley is tying together everything from inflation to bank bailouts to justify his policies, and he’s even dusted off at least one biblical references to smear usury (an ancient term for charging interest, a practice then viewed, by many, as immoral). Perhaps there is some comfort in knowing that even ancient humans distrusted financial markets, but that’s not much of a silver lining because price controls don’t work and what one or two members of Congress think is a “fair” level of profit is irrelevant to what it actually costs to provide people with credit.

As always, trying to help people is a praiseworthy goal. Looking through all the political rhetoric, though, we’re just left with a choice of how to organize our lives: With a great deal of government intervention and centralized control, or with less of both.

History has shown that the latter choice – a free enterprise system, with limited government –allows people to satisfy their needs better than the former choice, a system heavily controlled by politicians and bureaucrats who set arbitrary prices. Implementing price controls because some people view certain prices as “too high” might help a few politicians get elected, but it does not change the basic economic facts.

Price controls destroy the effectiveness of organizing and cooperating through markets and ultimately reduce citizens’ opportunities to improve their lives. It’s not incredibly hard to see why, even in the case of credit card rate caps.

Interest rate caps are price ceilings, a type of price control designed to prevent interest rates from rising above some (arbitrarily chosen) maximum. The core of the problem, though, is that price ceilings do nothing to limit demand. In other words, interest-rate caps will make it more costly to supply credit, but they will not do anything to reduce consumers’ demand for debt. Consumers who need credit will still need credit, but they will find it more difficult to obtain because lenders will find it more difficult to provide.

Of course, providers of credit may deal with this problem by lending larger amounts up front and/​or extending payment terms, both of which result in consumers paying higher interest over the full term of the loan. Still, even lenders who choose this approach (in a price-controlled environment) will have to be more careful when deciding to whom to lend. Obviously, lenders are not going to start this process by cutting off their highest quality prospects, and it’s not going to be doctors, attorneys, or best-selling authors that feel the most pain. There’s little doubt that those in most desperate need of credit are the people who will lose.

What’s particularly interesting about this latest attempt to implement price controls, though, is that no matter how hard the Durbin and Hawley gang try to paint this as a David vs. Goliath battle, the credit card market is much more complicated than that. It’s not, for instance, Wall Street vs. Main Street. Small banks and credit unions also issue credit cards and profit from payment networks – it’s not just the “big” banks.

It’s not surprising that all the major banking associations are opposed to these policies, even the powerful associations in Washington, D.C. who represent community bankers and credit unions. In fact, even the Missouri Bankers Association, the state trade group for small financial institutions in Hawley’s own state, is opposed. It’s easy to dismiss this critique as some kind of naked self-interest, but lenders want as many customers as possible for any given level of risk, and there’s no doubt that consideration is driving the associations’ objections.

Regardless of the politics, price controls are harmful policies that tend to hurt the people they’re supposedly designed to help. Credit markets are not an exception to this rule.