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.