A New Look at the Effects of the Interest Rate Ceiling in Arkansas

Gregory E. Elliehausen, Simona Hannon and Thomas W. Miller, Jr. ()

No 2021-045r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Arkansas has been a popular place to study the effects of rate ceilings because of its exceptionally low interest rate ceiling. This paper examines the effects of the Arkansas rate ceiling on credit use by nonprime consumers in Arkansas, who are especially vulnerable to credit rationing because of the low ceiling. We compare the level and composition of consumer debt of nonprime consumers in Arkansas with that of prime Arkansas consumers and also nonprime consumers in the neighboring states. We find that nonprime consumers in Arkansas are less likely to have consumer debt and, conditional on having debt, have slightly lower levels of consumer debt than prime Arkansas consumers and nonprime consumers in neighboring states. Types of credit used by nonprime consumers in Arkansas tend to differ from those of the comparison groups. Notable is much lower use of consumer finance loans, traditionally an important source of credit for higher risk consumers. This finding suggests rate-based rationing of risky consumers. Also notable is lower use of bank credit despite federal preemption of the rate ceiling for banks. This result is consistent with banks’ traditional avoidance of risky lending.

Keywords: Consumer Credit; Access to Credit; Interest Rate Cap; Financial Regulation (search for similar items in EconPapers)
JEL-codes: D14 G20 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2021-07-30, Revised 2023-05-05
New Economics Papers: this item is included in nep-ban and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2021045r1pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-45

DOI: 10.17016/FEDS.2021.045r1

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().