A 10 percent credit card rate cap could close doors for Black businesses

By Albert Wynn

I was honored to represent Maryland’s Fourth Congressional District for over 15 years, including two terms on the then-Banking Committee. During this time, I met with entrepreneurs, banks, lenders and small businesses to address the problem of access to capital for underserved communities. The problem persists, and as a result, these folks continue to rely heavily on credit cards as their most accessible source of working capital. This reality leads me to seriously question the wisdom of the current federal proposal to cap credit card interest rates at 10 percent.

Over the years, we’ve made significant progress in expanding access to credit. Today, a broader range of borrowers can access credit through starter credit cards and other products, opening new possibilities for Marylanders looking to start or grow a business.

Now, however, proposals in Congress threaten to halt that progress. At first glance, a rate cap looks like a win for consumers and small business owners. Who would not want to pay less on borrowed money? Though well-intentioned, this approach overlooks the harsh economic realities of the people it seeks to help and could lead to the unintended consequence of less, rather than more, access to capital.

Small businesses, especially Black- and minority-owned businesses, rely on credit cards as a vital bridge: paying for equipment, financing inventory and managing uneven cash flow. The Federal Reserve’s own 2024 Small Business Credit Survey found that 58 percent of small businesses regularly use credit cards, more than any other financing product.

Capping interest rates at 10 percent would significantly limit access to credit cards. Lenders evaluate every dollar they lend for risk. When they lend to applicants with lower credit scores or sparse financial histories, they do so at a higher interest rate because of the risk they assume. A 10 percent cap doesn’t mean they would lend to riskier borrowers at that rate; it means they wouldn’t lend to them at all. Black borrowers, who carry a lower average credit score than white borrowers, would bear the brunt of this.

The impact would ripple through Black entrepreneurs and small business owners. The Federal Reserve’s 2024 Small Business Credit Survey already found that only 35 percent of Black-owned employer firms that applied for financing were fully approved, compared to 56 percent of white-owned firms. A rate cap would make it harder for these entrepreneurs.

Like many business owners, Black business owners rely heavily on personal credit for financing. The way most build up that credit profile is through the responsible use of credit cards. Without the conditions that allow borrowers across the risk spectrum to access credit cards, these same business owners would find themselves priced out of the system.

In the absence of credit cards, these business owners would still have to access capital. This could force them toward merchant cash advances and unregulated lenders, where effective rates can run 40 to 150 percent or higher, with none of the protections that come with a regulated credit card.

Removing this credit line without offering a real alternative does not protect anyone; rather, it moves the risk from the boardroom to the kitchen table. Instead of a punitive cap, we should find solutions that actually expand opportunity: stronger CDFI funding, fairer underwriting that counts rent and utility payments, and credit education that helps entrepreneurs become bankable.

Black-owned small businesses are employers, anchors of local economies, and generators of wealth in our communities. Every barrier to credit access is a barrier to economic growth and financial independence. Economic growth, particularly in minority communities, requires practical solutions that open more doors to capital, not fewer.

The opinions expressed in this commentary are those of the writer and not necessarily those of the AFRO.

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