Are Interest Rate Caps Patriotic?

The DOD recently issued a report on predatory lending, concluding that "predatory lending undermines military readiness, harms the morale of troops, and adds to the cost of fielding an all volunteer fighting force." The DOD defined predatory lending broadly, including in its sweep common practices such as refund anticipation loans and car title lending. The report builds on academic research by Christopher Petersen and advocacy work by the National Consumer Law Center and the Center for Responsible Lending.

The report is shocking for two reasons. First, note that the federal government is advocating a usury law, which is quite a departure from its usual position on consumer credit policy. The DOD recommended a 36 APR cap on all extensions of credit to military servicemembers and their families. The DOD explicitly rejected suggestions that "education, counseling, assistance from [military] aid societies" and other alternatives are "sufficient" to curb predatory lending. Second, the report's proposals may have political traction. The interest rate cap was included as part of a comprehensive military bill that passed the Senate in June. It is currently pending in a House-Senate conference commitee. If it becomes law, it will provide a natural, nationwide experiment on the effects of interest caps on moderate and low income families, and could be used to build support for a similar law that applies to all consumers.