South Carolina is currently considering legislation that would cap the annual percentage interest rate for small-dollar loans at 36%. ACI Adjunct Fellow Professor Tom Miller testified before the Senate Labor, Commerce, and Industry (LCI) Labor and Employment Subcommittee on his new research that shows interest rate caps hurt the consumers that they are designed to help.

Lessons from Professor Miller’s study in Illinois suggest that rate caps don’t make loans less expensive, they make them less available. Earlier this year, ACI published a report entitled, “Capping Short-Term Interest Rates: A Recipe for Long Term Disaster.” Short-term loans are one of the few ways for unbanked consumers to access credit, particularly in times of financial stress. States that impose interest rate caps drive lenders out of the market, depriving borrowers a critical financial resource, and forcing them to seek riskier and more expensive alternatives like bank overdrafts and loan sharks.

The video of the testimony is available here.