Why a 10 Percent Credit Card APR Cap Kills Credit Access
Patrick McKenzie explains why capping credit card APRs at 10% forces banks to cut credit lines and close accounts for subprime borrowers.
Why banks pay you to use their credit cards
With Patrick McKenzie · Sunday, October 4, 2026
Patrick McKenzie breaks down the microeconomics of the credit card industry, explaining how banks monetize card products through net interest, interchange fees, user fees, and merchant marketing contributions. He examines why aggressive rewards competition creates unprofitable borrower segments, contrasts international regulatory regimes in the US, Europe, and Japan, and analyzes the structural fallout of proposed APR interest rate caps on consumer credit availability.
Key takeaways
- In January 2026, political proposals surfaced in the United States targeting a temporary one-year cap on consumer credit card APRs at 10%. Read more →
- Credit card interchange began as a merchant distribution fee, pitched to shops as an advertising channel rather than a simple transaction fee. Read more →
- European regulators capped interchange fees to protect merchant margins, cutting credit card share to 50% of electronic transactions, compared to over 70% in the United States. Read more →
- First Republic Bank regularly issued unsecured personal loans below 10% (and occasionally below 3%) to acquire early-career professionals. Read more →
- Selling raw cardholder data to third parties produces negligible revenue for major retail banks. Read more →
- Credit cards succeed as lending products by turning bespoke, one-off underwriting into automated, high-frequency, iterative credit decisions. Read more →
6 articles from this episode
Why Credit Card Points Are Worth More Than Airlines
Patrick McKenzie explains how interchange fees turned credit card rewards into negative-margin battles for mid-tier cardholders.
Why Credit Card Rewards Exist in America but Died in Europe
Patrick McKenzie explains how interchange fee regulations in the US, Europe, and Japan shaped credit card rewards, banking profits, and fintech.
First Republic and Cash App: Why Cheap Loans Win Deposits
Patrick McKenzie explains how First Republic and Cash App used cheap unsecured loans as loss leaders to capture deposits and interchange revenue.
Why Banks Sell Merchant Offers Instead of Data
Banks do not get rich selling CSV files. Patrick McKenzie explains how merchant acquisition budgets out-earn interchange and data sales.
Patrick McKenzie on Credit Card Economics and Revenue Levers
Patrick McKenzie breaks down the four revenue levers of credit cards: net interest, interchange, fees, and marketing contributions.
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