Brief The Effects of APR Caps and Consumer Protections on Revolving Loans
Evidence from the 2015 Military Lending Act Expansion
Thea Garon, Breno Braga, Ashlin Oglesby-Neal, Nicholas Martire
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In 2015, the Department of Defense expanded the consumer protection provisions of the Military Lending Act (MLA), including a 36 percent annual percentage rate (APR) cap, to revolving credit products such as credit cards. Proponents of this policy hoped the law would curb predatory lending practices and improve the financial well-being of service members and their families. This brief offers unique insights into whether this policy change benefited military families and informs ongoing discussions about whether similar policies should be extended to the general population. 

Using data from one of the major credit bureaus, we examine the effects of the MLA expansion on the credit health of borrowers. Specifically, we assess whether the 2015 expansion of the policy affected credit card ownership rates, credit limits, delinquency rates, and credit scores of military community members with subprime credit scores (Vantage scores of 600 or lower), the population most likely to be affected by the policy. We find that

  • the 2015 MLA expansion had no significant effects on credit card ownership or credit limits for military community members with subprime credit scores;
  • the policy expansion did not decrease delinquency and collections rates among borrowers with subprime credit scores, nor did the policy have an impact on credit scores; and
  • consumers with deep subprime credit scores may have had less access to credit after the MLA expansion.

To better understand these results, we use complementary credit bureau data from February 2022, the latest year available, to assess average APRs on revolving loans held by military community members with subprime credit scores. We find that very few consumers with subprime credit scores had revolving loans with APRs around 36 percent, suggesting that lenders did not respond to the MLA expansion by setting rates at or slightly less than 36 percent.

Our findings suggest 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. For the most vulnerable individuals—those with deep subprime credit scores—the policy may have had negative effects by limiting their access to credit. We therefore conclude 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.

Research Areas Wealth and financial well-being
Tags Asset and debts Credit availability Financial products and services Financial Well-Being Data Hub
Policy Centers Center on Labor, Human Services, and Population
Research Methods Quantitative data analysis