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Federal Policy PressPress Release

Senator Reed’s 36% Rate Cap Bill Increases Hardships on Millions of Americans By Eliminating Vital Forms of Credit

By December 15, 2023April 26th, 2024No Comments

ARLINGTON, Va. (December 15, 2023)—After Sen. Jack Reed (D-R.I.) reintroduced his perennial legislation to force the Military Lending Act’s credit-eliminating restrictions on millions of Americans, Online Lenders Alliance Executive Director Andrew Duke issued the following statement:

“Despite the baseless claims of success from proponents, data from multiple studies affirms that the Military Lending Act has made access to credit significantly more difficult for servicemembers and their families. The MLA’s loan restrictions mean many servicemembers experience increased financial hardship as they are denied access to potential credit options and often forced into bad outcomes.

“Too many consumers across the country already have difficulty accessing credit. New data from multiple states reiterates that rate caps don’t make credit more affordable; they make credit less available, which means fewer options for hardworking Americans who are trying to manage their financial needs.”

Multiple surveys have detailed the variety of ways that the Military Lending Act has adversely impacted American servicemembers and their families. Most recently, a study released earlier this year by the Urban Institute suggests that “the 2015 Military Lending Act expansion did not lead to better credit and debt outcomes for service members most likely to be affected by this policy” and “for the most vulnerable individuals […] the policy may have had negative effects by limiting their access to credit.” Furthermore, the Urban Institute’s ultimate finding was that “extending the consumer protections of the expanded MLA, including the 36 percent APR cap, to revolving credit products available to all borrowers would not be an effective way of improving the credit health of most people in the United States.”

Those findings come on top of multiple other studies. A 2019 survey found that a majority of military households had been denied loan products because of the MLA. Another study by the U.S. Military Academy notes that the only remaining alternatives to the types of loans that a 36 percent rate cap would abolish “could be equally or even more costly.”

These outcomes are also borne out in states where a 36 percent rate cap have been implemented. For example, in Illinois, which implemented a rate cap in 2021, the rate cap has been shown to hurt the very people proponents claimed it would help. An academic study by three leading economists determined that Illinois’ interest rate cap significantly decreased the number of loans to borrowers with lower credit scores who are often rejected by banks and credit unions. And a survey of former short-term small-dollar loan users in Illinois found that they struggled with paying their bills since the products they previously used were forced out of the market as a result of the rate cap. A majority of former borrowers in that survey also indicated that they were unable to access credit at some point following the rate cap and when unable to access credit, consumers said they were left with poor alternatives, including late bill payments, skipping urgent appointments or vital expenses, or pawning valuables.

A similar survey of borrowers in New Mexico, which implemented a rate cap at the beginning of this year, also found that former loan users are struggling to pay bills and access credit with the credit products they previously used no longer in the marketplace.


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