The Cost of Privacy. The Impact of the California Consumer Protection Act on Mortgage Markets

Manish Gupta, Danny McGowan and Steven Ongena
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Manish Gupta: Nottingham University Business School

No 23-25, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study how the introduction of a law protecting consumer data privacy affects the cost of credit in the US mortgage market. Our estimates reveal that the California Consumer Protection Act increases loan spreads charged by banks by 8 basis points but that it has no effect on the fixed origination costs charged to borrowers. In contrast, nonbanks do not charge more, possibly because they often resell to government-sponsored enterprises thereby minimizing their compliance costs. Banks also reduce their supply of credit more in lower-income areas, consistent with more informationally intense data collection practices there potentially exposing them to larger legal costs. In sum, our findings suggest that banks pass the CCPA compliance costs to borrowers through higher interest rates and reduce their legal exposure by curtailing credit where more data need to be collected.

Keywords: Consumer Data Privacy; Shadow Banks; Mortgages; Regulatory Costs (search for similar items in EconPapers)
JEL-codes: D12 G21 G23 G28 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-law, nep-reg and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2325

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