Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits

Rajashri Chakrabarti, Daniel Garcia, Donald Morgan and Lee Seltzer

No 1173, Staff Reports from Federal Reserve Bank of New York

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.

Keywords: usury limit; household debt (search for similar items in EconPapers)
JEL-codes: G28 G50 G51 (search for similar items in EconPapers)
Pages: 37
Date: 2025-12-01
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:102207

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DOI: 10.59576/sr.1173

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