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%.
  • Banks spend hundreds of dollars in upfront customer acquisition costs (CAC) per cardholder, expecting to amortize that expense over years of card usage.
  • Subprime default rates reliably spike above 5% during macroeconomic downturns, creating severe downside risk for unsecured portfolios.
  • Issuers facing a 10% rate cap will not absorb losses; they will immediately slash credit lines or shutter starter accounts to eliminate negative contribution margins.

The Math of Unsecured Lending

Politicians often treat interest rate caps as a simple transfer of wealth from profitable banks to struggling consumers. The underlying unit economics tell a very different story.

Patrick McKenzie points out that unsecured consumer lending carries massive tail risk. When the economy slows down, default rates do not remain flat. “The credit card defaults tend to be low for most users of credit cards almost all of the time, then particularly for people in lower socioeconomic strata, folks with lower FICO scores, etc., they spike when there is macroeconomic stress to higher than 5%,” McKenzie explains.

If a bank funds a loan, covers operating costs, absorbs servicing overhead, and then eats a 5% or higher default rate during a downturn, a 10% gross yield leaves virtually zero room for error. As McKenzie notes, “the possibility for that to be sharply contribution margin negative if a large subset of customers were to default in that year, make 10% not maximally viable for credit card issuance. That number prevails basically nowhere for unsecured consumer debt.”

The Real Response: Slashing Lines

When price controls make a customer segment unprofitable, banks do not keep lending at a loss out of charity. They change who gets access to money.

Card issuers invest heavily to get customers in the door. As McKenzie observes, “Credit cards are generally loath to lose customers. They pay really substantial costs of customer acquisition up front, typically hundreds of dollars per new account, and need to sort of amortize that over the lifetime of the customer.”

Because banks cannot easily raise prices under a hard cap, their only defensive move is risk reduction. “There was recently a proposal by a US politician, Trump I believe, in January 2026 for a one-year APR cap at 10%. Mechanically, here's what you should expect the credit card industry to do if APRs ever get capped,” McKenzie says. “What it would likely result in is an immediate closure of some accounts or a de-risking for them. So for example, you might have a credit card line get cut for the duration of that one-year APR holiday with potentially a re-expansion of the line after the APR holiday is over.”

Instead of protecting vulnerable borrowers, price ceilings wipe out their available credit lines overnight.

What to Do With This

Audit your own product pricing and customer acquisition payback periods this week. If you offer payment terms, credit, or software discounts, calculate your exact unit margins under a scenario where defaults or churn double during a recession. If your contribution margin turns negative under stress, cut your risk exposure now rather than waiting for an external shock to force your hand.