When Borrowing Costs Rise, Credit Access Counts

In September, the Federal Reserve raised interest rates by a quarter point, the first increase since 2023. For families already managing higher costs, that puts renewed attention on what Americans pay to borrow, and whether they can access credit when they need it.

That tradeoff matters in the debate over credit card rate caps.

Americans rely on flexible credit

Credit cards are more than a way to pay. They give families access to short-term financing when an unexpected expense arrives before the next paycheck.

About 80 percent of American adults have a credit card, and most use it as a flexible tool. A Federal Reserve household survey found that among the 37 percent of adults who couldn't cover a $400 emergency in cash, the most common fallback was a credit card.

As Melissa Koide, former Treasury Department deputy assistant secretary and CEO of FinRegLab, noted, for Americans living paycheck to paycheck, responsible credit is often "the difference between a setback and a crisis."

Access to safe credit protects borrowers

A rate cap does not solve the affordability problem—it shrinks the supply of regulated credit. And the higher borrowing costs climb, the harder a fixed cap squeezes the credit available to everyday borrowers. Borrowers pushed out of the card market often turn to payday loans, which can carry an APR of almost 400 percent and far fewer protections.

Urban Institute researchers Breno Braga and Thea Garon warned that a cap could backfire on the people it aims to help:

• "[A] policy intended to shield consumers from high interest costs could unintentionally push them toward products with fewer safeguards, less transparency, and higher costs."

Credit is part of the solution

Affordability concerns are real, and policymakers should take them seriously. But the right response to higher borrowing costs is keeping safe, regulated credit within reach, not rationing it.

Whatever the Fed does next, safe, flexible credit will remain one of the most important tools families have to weather higher costs.

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