This is the Cato Daily Podcast for Tuesday, May 14th, 2019.

I'm Caleb Brown.

A new proposal to cap interest rates at 15% throughout much of the economy would cut many people out of the market for credit entirely

and those who are unbanked and do not qualify for even the most rudimentary banking services

would face special hardship.

Cato's Diego Zilawaga has poured over the proposal.

He comments.

Representative Alexandria Ocasio Cortez and Senator Bernie Sanders would like to cap interest rates on credit cards,

recreate a system of postal banking in which the post office would be providing banking services and you'll tell me what the what the limits on those services are that they would like to provide but in general what do we know about how credit cards function

who pays the bills and why 15% would cut a lot of people out of the market for credit cards entirely.

Right, so the first thing to state is that people use credit cards to pay for everyday

expenses most Americans do. The outstanding balance on credit cards in the United States right now is somewhere

around 800, 900 billion dollars, almost a trillion dollars. And it's just an everyday means of payment.

Most people don't carry credit card balances of course,

but some people do, some people borrow for longer than the month

during which they have an outstanding balance.

And the average rate on credit cards right now is something like 17, 18 percent.

And that is the average, right?

They go, it extends far higher and for a select group of people presumably lower.

That's right.

So I would say there are a couple of clusters there.

One would be around the 16, 17 you know sometimes even 14% range and

...