TY - JOUR
T1 - The effects of usury laws
T2 - Evidence from the online loan market
AU - Rigbi, Oren
PY - 2013
Y1 - 2013
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84886081845&partnerID=8YFLogxK
U2 - 10.1162/REST_a_00310
DO - 10.1162/REST_a_00310
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AN - SCOPUS:84886081845
SN - 0034-6535
VL - 95
SP - 1238
EP - 1248
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
IS - 4
ER -