As interest rates climb, here's why proposed caps on debt may not help reduce costs for consumers
- A 2015 expansion of the Military Lending Act extended a cap on annual percentage rates at 36% for revolving credit.
- As interest rates on debt climb, Congress may consider implementing a similar policy.
- But other changes may better help consumers save, research finds.
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Rising credit interest rates have made it even more expensive to carry debts.
But a proposal in Congress that would cap rates on consumer loans at 36% may not be an effective way of curbing those higher costs of borrowing, according to new research from the Urban Institute's Financial Well-Being Data Hub.
The report examines the effects of a previous policy, the 2015 expansion of the Military Lending Act, which also extended a 36% cap on annual percentage rates for revolving credit such as credit cards and overdraft lines of credit.
But the changes did not effectively result in enhanced consumer protections, the Urban Institute's research found.
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One key reason why: The average APR on revolving loans was 17%, based on credit bureau data on residents of military communities with subprime credit scores.
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