The Effects of Usury Laws: Evidence from the Online Loan Market

Oren Rigbi ()

The Review of Economics and Statistics, 2013, vol. 95, issue 4, 1238-1248

Abstract: Usury laws cap the interest rates that lenders can charge. Using data from Prosper.com, an online lending marketplace, I investigate the effects of these laws. The key to my empirical strategy is that there was initially substantial variability in states' interest rate caps, ranging from 6% to 36%. A behind-the-scenes change in loan origination, however, suddenly increased the cap to 36%. The main findings of the study are that higher interest rate caps increase the probability that a loan will be funded, especially if the borrower was previously just "outside the money." I do not find, however, changes in loan amounts and default probability. The interest rate paid rises slightly, probably because online lending is substantially, yet imperfectly, integrated with the general credit market. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: person-to-person lending; consumer credit; usury laws; financial market regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 L81 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00310 link to full text PDF (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Effects of Usury Laws: Evidence from the Online Loan Market (2012)
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:tpr:restat:v:95:y:2013:i:4:p:1238-1248

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().