Study Finds That Predatory Lending Regulation Leads to Lower Interest Rates and No Loss of Credit Availability

by Jeff Sovern

Yesterday, I was on a panel at the Annual Meeting of the American Council on Consumer Interests, along with Dr. Yilan Xu, a professor at the University of Illinois in agricultural and consumer economics.  Dr. Xu's talk concerned a natural experiment in Cleveland, Ohio.  Cleveland had enacted an anti-predatory lending ordinance which was later found invalid by the Ohio courts.  Dr. Xu compared mortgage lending in Cleveland before and after the law was invalidated, and also examined similar lending in the Cleveland suburbs that was not subject to the Cleveland law.  She found that after the law was struck down, lenders in Cleveland made more high-price loans, that those loans were 5% more likely to go into foreclosure, and that there was no evidence of credit expansion.  These findings contrast dramatically with claims that credit regulation will increase the price of credit and reduce its availability. Unfortunately, the paper is not yet available on the web, and so I can't link to it, but this study suggests that in at least some circumstances, consumers can have their cake and eat it too, in that they can have consumer protection, lower interest rates, and no loss of credit availability. 

Update: the paper is now available here

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