ICYMI: Quick Fixes Like Rate Caps Won’t Solve the Affordability Crisis

A New York Times Guest Essay by Biden Treasury Official highlights how credit card rate caps harm consumers, "making it harder for the poorest borrowers to get access to credit at all."

WASHINGTON, D.C. - A New York Times op-ed, "Everything Feels So Expensive. Here's What Really Going On," by Yale Law School professor Natasha Sarin, a former official in the Biden Treasury Department, highlights how one-off quick fix policies, like credit card rate caps, won't actually resolve the underlying economic instability facing Americans. Sarin also identifies housing, health care, education, and child and elder care as the largest expenses driving financial stress, which overlap with the "Four Horsemen" of affordability identified in a CBA-supported analysis of household budgets: housing, healthcare, food, and transportation.

To read the whole op-ed, click HERE.

Dive Deeper

As a key issue discussed across the country, affordability has been a continued area of focus for CBA. In a February edition of the Point of Impact quarterly letter, CBA President and CEO Lindsey Johnson highlighted the "Four Horsemen" and other cost pressures and discussed how policies that don't address structural affordability challenges at their source can undercut consumers' ability to manage cost pressures. CBA's analysis also shows how differences in households, such as childcare costs, may have significant financial impacts that may otherwise be hidden in the averages. For instance, only 24 percent of parents of young children report paying for childcare. But for just over half of those that do, those costs were at least 50 percent of their overall housing costs.

Sarin echoes CBA's findings and advocacy from subsequent analysis in the Point of Impact quarterly letter-calling for a focus on underlying causes for affordability rather than "quick fixes" that ultimately do more harm than good. As Johnson's testimony before the Senate Banking Committee at its Affordability Agenda hearing in June emphasized, competition and access to credit and responsible financial products are crucial. She called for policymakers to address the underlying structural drivers of rising costs, including the "Four Horsemen" and expenses echoed by Sarin as main drivers of financial stress: student debt and childcare.

Sarin also points out that quick-fix policies, like credit card interest rate caps, won't work and can risk "an affordability doom loop." In a two-part Facts Matter series, CBA addressed that the paper's own analysis indicates that a 10 percent cap would reduce credit for three-quarters of cardholders and several technical flaws in the paper's analysis.

Sarin's op-ed raises much the same point:

"When rates are forced down, credit card companies become warier of risk, making it harder for the poorest borrowers to get access to credit at all. That leaves them reliant on much more expensive alternatives, like payday loans or overdrafting on their bank accounts."

CBA Advocacy

• In the October edition of the Point of Impact quarterly letter, CBA President and CEO Lindsey Johnson highlighted recent research by Dr. Alexei Alexandrov addressing why many Americans feel financially squeezed and pessimistic about their future financial state, while noting the role that healthcare expenses, homeownership, and expense shocks play in how consumers experience the economy. To read the full letter, click HERE.

• In the February edition of the Point of Impact quarterly letter, CBA President and CEO Lindsey Johnson highlighted Alexandrov's research on the largest and fastest growing expenses for American families over the last decade (2013-2024), while also conveying how credit cards, home equity lines and other bank products can serve as short-term "shock absorbers," helping families manage unexpected expenses while policymakers focus on addressing the underlying causes of rising costs. To read the full letter, click HERE.

• In March, CBA published A Well-Managed and Necessary Source of Credit: The State of America's Credit Cards, documenting trends in balances, repayment behavior, access to credit and the role credit cards play in helping households manage unexpected expenses. To read the full analysis, click HERE.

• In June, CBA President and CEO Lindsey Johnson testified before the Senate Banking Committee at its Affordability Agenda hearing, emphasizing the importance of competition, access to credit and responsible financial products while calling for policymakers to address the underlying drivers of rising costs. To read Johnson's testimony, click HERE.

• In July, CBA released a consumer-facing fact sheet on credit cards and affordability, explaining how credit cards help families bridge unexpected expenses, build credit and protect consumers, while examining the potential consequences of government-imposed interest-rate caps. To read the fact sheet, click HERE.

• Recent CBA-supported research from Dr. Alexei Aleandrov that examines the gap between strong macroeconomic statistics and Americans' pessimistic economic outlook mirrors that sentiment. Dr. Alexandrov finds that macroeconomic averages conceal completely different experiences based on employment stability, housing status, and financial cushion. To read the research paper, click HERE.