Rate Caps


What It Is

Legislation has been introduced in Congress that would impose an all-in 18 percent annual percentage rate (APR) cap on credit card interest. Additional legislation has been proposed to extend the Military Lending Act’s all-in APR cap of 36 percent on consumer loans for servicemembers to all consumer loan products.

Why It Matters

Interest rate caps harm the very people they’re intended to help. Empirical data shows rather than protecting consumers, interest rate caps harm borrowers who have high debt by reducing access to credit, which can increase loan defaults and limit access to emergency credit. When lenders cannot appropriately price risk, they cannot justify lending funds, and the amount of overall credit available in the market drops. Consumers impacted most by rate caps are typically low- and middle-income consumers who may have challenging credit histories and are considered higher risk and must be priced appropriately.

Additionally, there is no evidence that APR caps make consumers better off or save them money. The available evidence confirms that fee and interest rate caps reduce access to credit, especially for those with no or troubled credit history, and force some consumers to take out a larger loan than they need to get a lower APR.

What We Believe

An all-in APR is a flawed tool for measuring the true cost of a loan. An all-in APR captures items that should be excluded from APR calculations, such as extended warranties, services, or annual fees. Additionally, the terms of consumer loans are often less than a year, and the APR is an inappropriate and misleading way to measure the cost of a short-term loan.
Interest rate caps do nothing to address demand for credit, particularly small-dollar and short-term loans. Rate caps only reduce the supply of these loans.
An arbitrary all-in APR cap would mean borrowers will have fewer options and be forced to seek credit through less regulated sources without the consumer protections guaranteed from banks.


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