Credit Card Mandates and Caps Hurt Small Businesses, Startups, and the Consumers They Serve

By SBE Council at 15 January, 2026, 11:41 am

by Raymond J. Keating –

Economists are big on considering and fleshing out unintended consequences. When referencing unintended consequences, we’re talking about the fact that actions undertaken by people, and in particular, by government, can have effects or outcomes that are unintended. So, while various legislation and regulations might have the best of intentions, and sound great to many, the effects often can be harmful and costly.

In the end, good intentions via policy actions don’t necessarily lead to intended, positive outcomes. To limit unintended consequences, actions based on political assumptions and rhetoric must be considered more substantively, including testing such actions and their intentions against sound economics and market realities.

Unfortunately, another example of the ills of unintended consequences is at hand with various legislative attacks launched against credit cards. Namely, U.S. Senators Dick Durbin (D-IL) and Senator Roger Marshall (R-KS) have pushed legislation that would impose credit card payments routing mandates. And Senators Bernie Sanders (D-VT), Josh Hawley (R-MO) and Elizabeth Warren (D-MA), now with the support of President Trump, have advocated for a government-mandated cap on credit card interest rates at 10 percent.

Political Appeal vs. Impact

At first glance, without much consideration, it might be easy to see the political appeal of such government intrusions in the marketplace. In the case of routing mandates on credit cards, various large retailers want to accept credit card payments offered by the banks, but don’t want to pay the prices charged (i.e., interchange fees) for these services. So, why not have government step in and force banks to use other payment networks? And in the case of interest rate caps, in order to help consumers with debt, why not have government just step in and put a cap on interest rates paid on credit cards?

Sounds great, and what could possibly go wrong? There’s the rub. Indeed, we’ve been down these paths before, and should understand the numerous problems.

Most obvious, increased costs via government-imposed price caps and mandates mean reduced access to credit for individuals, families, entrepreneurs and small businesses. There’s really no getting around that if one understands that interest rates on credit cards are set according to consumer and market realities. Put a cap on credit card interest rates, and there’s going to be less – a lot less – credit supplied to individuals, families and businesses.

The benefits of credit cards to consumers are clear and numerous, including being able to make purchases for emergency or major expenses, as well as benefits such as convenience, security, financial management, rewards and innovations from issuers, and more. All of these points are magnified as we move to a cashless society.

Entrepreneurs and small businesses gain from quick access to credit via credit cards to help start up, build, sustain and grow their businesses. The use of credit cards is just as important to small businesses as they are to consumers in general, including in such areas as cash flow and expense management, building credit, and assorted rewards and perks.

Moreover, thanks to the acceptance of credit cards, small businesses experience increased sales; are guaranteed payment; eliminate major costs that would otherwise fall on them if they had to establish their own credit and billing systems; and make security gains, including protection against employee theft.

Consider the following major points about credit cards, and entrepreneurship and small business:

● According to a December 2024 report titled “Start-Up Capital for U.S. Business Ventures: Evidence from EPOP:2024” from NORC at the University of Chicago, “Most business owners (83%) used their own personal assets to fund start-up costs for their business. Using credit cards carrying balances is the second most frequently cited source of capital, with 25% of business owners reporting use of personal credit cards and 16% using business credit cards.”

● Findings from an SBE Council survey made clear the value of electronic payments for entrepreneurs. Among new business owners who started a business during the pandemic, 87 percent said that access to electronic payment options was important to their decision to launch. Also, access to electronic payments tied for first (68 percent) as the most important tool or technology in starting a new business.

● The Federal’s Reserve’s “2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey” found that the use of credit cards was the top means of credit financing for U.S. employer firms, as noted in the following chart from the report, with 58 percent of firms using credit cards on a regular basis.

● In another report at Ramp.com, it was noted, “About 79% of small businesses use at least one business credit card for day-to-day operations.”

● Among the findings in an NBER study released in March 2025 titled “Credit Card Entrepreneurs,” the authors found that “Beginning in January 2021, over less than two years, credit card usage by small U.S. businesses nearly doubled, interest payments rose by 60%, and delinquencies reached 2.8%.” It was highlighted: “In more than 61 percent of responses, firms underlined the financial benefits of relying on business credit cards, such as ease of access, emergency use, and repayment flexibility…” Plus, the following point was made regarding the challenges of high interest rates but this same point certainly applies to limiting access to credit due to other factors (such as destructive government regulations) as well: “Given that even today’s superstar firms often began as small, young enterprises, inadequate access to financing not only weakens the current labor market—it might also jeopardize the emergence of the next generation of high-growth firms.”

Regarding the negative consequences for small businesses and startups of government mandates regarding credit card interchange fees and caps on credit card interest rates, they are and promise to be considerable.

● Lost and Reduced Services, Higher Fees. First, as for recent history, the Durbin Amendment to the Dodd-Frank bill in 2010 implemented price controls and routing regulations for debit cards. The predictable – though unintended – results included lost or reduced services like rewards programs and free checking; higher banking fees; increased debit card acceptance costs for small businesses who lost interchange discounts for small-ticket purchases; and reduced incentives for investing in network improvements and innovations that would benefit consumers and small businesses. Small, community banks and credit unions were supposed to be exempt from the Durbin Amendment, but those nasty intended consequences showed up again. Small financial institutions faced pressures to reduce their interchange fees, and they not only lost revenue, but also various institutions actually implemented strategies to keep their assets below the level ($10 billion) where the Durbin regulations kicked in directly.

Extending costly routing mandates to credit cards, again, would be burdensome, including for small businesses. The mandates would drive resources from the credit market and force financial institutions to reduce crucial lending to entrepreneurs and their businesses, and strip small businesses of valuable services, like fraud prevention and credit card rewards.

● Reduced Resources for Community Banks and Capital for Consumers and Small Businesses. A May 2025 study from the University of Miami reported, “Legislation in Congress and numerous states intended to reduce the interchange fees charged by credit cards would significantly reduce revenue for community banks and credit unions and-concomitantly-reduce access to credit in smaller markets across the United States, disproportionately affecting low-income households… The loss of revenue to smaller financial institutions – which tend to operate in smaller markets – means that the loss of credit from laws intended to reduce interchange fees will disproportionately affect the availability of credit in these communities and lead to a more rapid consolidation in the banking market.”

● Harmful to Small Business Competitiveness: Another study from the University of Miami (February 2024) concluded: “The intent of the proposed Credit Card Competition Act (CCCA) is to reduce routing fees for credit card transactions to save merchants – and hence consumers – money. However, this analysis suggests that almost all of those savings will accrue to retailers with $500 million or more in annual sales, with little going to small businesses. I estimate that the largest U.S. retailers would effectively receive a transfer of approximately $2.9 billion from issuers and cardholders impacted by the legislation. But small businesses would save significantly less, if anything, putting small retailers at a further competitive disadvantage than is currently the case. Further, small business operators receive roughly $12 billion in credit card rewards when they make purchases on credit themselves, which constitutes roughly one-tenth of all credit card rewards. The CCCA would result in the reduction of such programs, costing small businesses over $1 billion in lost rewards as well as a decline in access to credit. This would further diminish their ability to compete with larger businesses.”

● Loss of Credit Cards and Credit for Many Consumers. As for credit card interest rate caps, a new report from the Electronic Payments Coalition noted the following if a 10 percent cap was placed on credit card rates:

– 82–88% of open credit card accounts would effectively lose access to credit under a 10% APR cap.

– Nearly every credit card account associated with a credit score below 740 would be closed or severely restricted.

– 175–190 million American cardholders would effectively lose access to credit cards nationwide.

– All remaining cardholders — regardless of credit score — would face lower credit limits, tighter underwriting standards, and reduced or eliminated rewards.

– LMI households and young consumers would be most likely to lose access, limiting their ability to build credit or manage financial shocks.

– Consumers shut out of credit cards would likely turn to higher-risk alternatives exempt from the cap, including payday lenders, unregulated online lenders, title lenders, and pawn shops.

Obviously, entrepreneurs would be negatively affected as both those using credit to, again, startup, build and operate their businesses, and then be devastated by the reduction in credit availability for consumers.

● Consumers Who Need Credit the Most Suffer. In an Unleash Prosperity report, Stephen Moore explained the harmful effects of interest rate caps. Moore sums up the matter of setting interest rates simply: “Banks must be able to charge interest rates that correspond to the risks they’re taking with customers who have lower credit profiles. If this differential pricing is prohibited by federal law, the banks are destined to do what’s in their economic interest and sharply curtail their offerings to consumers with substandard credit profiles… Credit card issuers set interest rates based on a variety of factors – though the most important are typically the Federal Reserve’s prime rate and each customer’s creditworthiness, income level, and relationship with the issuing bank.” That’s basic economics.

What happens when good intentions ignore sound economics? Again, we see ugly unintended consequences. Moore went through many in his report, but the following point in terms of the overall economy is worth highlighting:

“People suddenly finding themselves with reduced access to credit would likely spend less, which would depress economic activity and economic growth – taking the United States back to the 1970s.”

All true. Once again, though, the impact on entrepreneurship, startups and small business growth – and the innovation, and the economic, income and employment growth generated by such entrepreneurship – should not be pushed to the backburner in looking at the ill effects of these political attacks on the credit card industry.

Regulatory mandates and interest rate caps on credit cards rank as a classic case of politicians ignoring the full consequences of their proposals, and those unintended consequences would fall heavily on American small businesses.

Interestingly, one of the earliest examples of an economics argument being used to counter legislation that would have negative unintended consequences had to do with government seeking to cap interest rates. Writing on Econlib.org, Rob Norton explained:

“In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent. Locke argued that instead of benefiting borrowers, as intended, it would hurt them. People would find ways to circumvent the law, with the costs of circumvention borne by borrowers. To the extent the law was obeyed, Locke concluded, the chief results would be less available credit and a redistribution of income away from ‘widows, orphans and all those who have their estates in money.’”

Yes, we have been down this road before, and the negative consequences of government intruding in credit markets via, for example, interest rate caps and mandated payments routing should be obvious to all.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of “The Weekly Economist” book series, and 10 Points from Walt Disney on Entrepreneurship.