Interest Rate Caps

ABA Position

Economic research has shown that interest rate caps on bank loans make consumers and economies worse off. When imposed on highly-regulated lenders like banks, interest rate caps reduce access to those credit products which carry the most consumer protections.

Because arbitrary caps do not reduce demand for funds by consumers and businesses, borrowers are forced to seek the services of payday lenders and other less-regulated sources of loans, including the black market. Banks are already subject to more effective forms of regulation than rate caps, such as being required to evaluate the ability of consumers to repay a loan before credit is extended.

The ability of banks to offer credit products across state lines has created a competitive, national market with enhanced regulatory supervision. This movement away from a patchwork of inconsistent and vague state laws is progress towards giving consumers more options, no matter where they live. Attempts to undermine this national market would be a step backwards and result in less competition.