Are Your Credit Card Interest Rates Too High?

U.S. President Donald Trump’s proposal to cap credit card interest rates at 10% for one year has renewed debate in Canada over whether similar measures should be adopted. Advocates who have long called for lower card rates say the change could protect consumers from excessive charges, while banks warn that artificial caps risk reducing access to credit and shifting costs to fees or alternative products.

Credit card rate caps spark debate

The Canadian Bankers Association responded Monday by stressing that Canada’s credit card market is competitive and well regulated. “Regulatory interventions that artificially cap credit card interest rates can create unintended consequences that harm consumers, such as reducing credit availability for many Canadians and business owners,” spokeswoman Nathalie Bergeron said by email. She added that a rate cap could push customers toward more costly alternatives and reduce the benefits consumers receive from credit cards.

Consumer advocate Duff Conacher, co‑founder of Democracy Watch, has long campaigned for lower credit card rates in Canada and argues that banks’ warnings about reduced credit access are often unproven. “When banks claim they’ll have to cut off customers if margins fall, they should be required to demonstrate that,” he said. Conacher points out that typical credit card rates have hovered around 20% for years despite wide swings in benchmark interest rates, which suggests there may be room to lower rates without eliminating credit availability.

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Studies suggest rate caps could save billions

Research in the U.S., conducted after the proposal was first announced as a campaign pledge, estimated Americans could save about US$100 billion a year in interest if credit card rates were capped at 10%. The study concluded the card industry would suffer a major hit but could remain profitable, though rewards programs and other perks might be scaled back.

In Canada, the banking association has highlighted consumer behaviours and product diversity to argue against broad interventions. Darren Hannah, the association’s senior vice-president for banking policy, told a parliamentary committee late in 2024 that 71% of Canadians pay off their card balances in full each month and that lower‑interest card options and installment loan products already exist. He also noted industry measures during the COVID‑19 pandemic, such as payment deferrals, as examples of support offered to customers in hardship.

Despite those supports, credit card interest rates did not fall significantly during the pandemic even as the Bank of Canada’s policy rate reached historic lows. That lack of movement prompted the Canadian Labour Congress and other groups to call on banks to share more of the benefit of lower benchmark rates with consumers.

Related reading: Credit card interest calculator

Federal interest caps stop short of credit cards

Canada has recently moved to limit excessive loan charges: Ottawa capped the maximum allowable interest rate on loans at 35% APR, down from 48%, and introduced lower maximums for payday loan fees. Those federal changes, however, do not extend to credit cards, leaving card interest rates subject to market forces and industry practices.

Experts warn that focusing solely on headline interest rates may not capture the full cost consumers pay. Claire Celerier, Canada Research Chair in household finance at the University of Toronto’s Rotman School of Management, points out that banks could offset an interest rate cap by raising late fees, interchange fees, or other charges. “If you cap the interest rate but leave fees uncapped, banks may recover lost revenue through less visible charges,” she said, which could distort incentives and weaken consumer protections.

Lower-income cardholders tend to bear hidden costs

Hidden fees and interchange costs can disproportionately affect lower‑income consumers. While merchants spread interchange fees across all customers, higher‑income cardholders are more likely to benefit from rewards programs that offset those costs. That dynamic means any shift in pricing—whether through rate caps or higher fees—can hit low‑income households hardest.

In 2024 the federal government reached an agreement to reduce interchange fees, but Canadian rates remain substantially higher than in many European countries. Derek Holt, vice-president of Scotiabank Economics, has argued that a lower cap could trigger higher minimum payments, expanded fee schedules, and the loss of some interest‑free or low‑cost credit options. He suggests that boosting financial literacy and addressing income inequality might be more effective ways to reduce consumer harm than blunt rate caps.

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