Originally Posted by Planetrain

Banks have a virtually limitless amount of capital through the Federal Reserve. The cost of capital is roughly 3.5-3.75% plus a small premium. If credit card interest is capped at 10% there is still plenty of room for profit. I concede that there is a subset of card holders with poor credit that due to the risk of collective defaults, will not have additional credit extended to them. But to the higher credit scores, many that would seek credit elsewhere (home equity, loans, 401k loans, BNPL etc), they no longer will have to shudder at 24.9%-30%APRs. The penalty for going deeper in debt is significantly cut and people will aggressively make purchases.

Generally speaking, America is dumb and financially irresponsible. A majority of Americans live paycheck to paycheck. Less than 50% could come up with $1000 in the event of an emergency. Inflation is out of control, Instagram convinces people to buy stuff they don’t want, to impress people they don’t even like, with money they don’t have. There are more than enough low default risk, mid to high income earners that would go into CC debt at 10% and still be profitable for Visa, Amex, and MC. As they go further into debt, or jump in for the first time (the “debt curious”), the banks make up their loss in interest rate though volume and higher volume in merchant fees.
And so what if an issuer bank defaults? Our federal reserve will rescue and bail them out in a heart beat. Exhibit A Great Recession, exhibit B Signature Bank of NY, exhibit C Silicon Valley Bank.