Rajashri Chakrabarti of the Federal Reserve Bank of New York, Daniel Garcia of the Columbia Business School, Donald P. Morgan, also of the NY Fed, and Lee Seltzer of the NY Fed have written Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits. Here’s the abstract:
Many states have capped consumer loan interest rates to protect households from high-cost lenders. Using triple-difference and event study analysis, we investigate how these usury limits affect the availability and allocation of credit across households. Consistent with standard price theory, we find that credit to the riskiest borrowers contracts under usury limits without improving delinquencies. More surprisingly, credit to lower risk borrowers expands under usury limits. This reallocation suggests that usury limits have unintended effects that are not entirely explained by standard theory.
