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An examination of firm licensing behaviour after a payday-loan ban

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  • Stefanie R. Ramirez

Abstract

In 2008, Ohio enacted the Short-Term Loan Law capping interest rates to 28% APR, effectively banning the industry. Previous analysis has shown that while the policy was effective in eliminating the payday lending industry, expansion occurred within the pawnbroker, small-loan and second-mortgage lending industries in effective policy periods. Extending this previous analysis, using branch-level licensing records from the Ohio Division of Financial Institutions, this study examines the firm’s decision to license at the branch-level both with a zip code and within a county. I predict the effects of the ban on the likelihood of entry in the small-loan and second-mortgage industries while also controlling for incumbent status as a payday lender. Results at the zip-code level show that the likelihood of entering the lending market as a small-loan lender increases by 35.4% and initiating a second-mortgage license increases by 6.3% after the signing the Short-Term Loan Law. At the county level, the probability of initiating a small-loan licenses increases by 15.3%, while the likelihood initiating a second-mortgage license increases by 6.3%. At the county level, branches previously operating as payday lenders are 1.1% more likely to re-license as small-loan lenders, though has no effect on licensing as a second-mortgage lender.

Suggested Citation

  • Stefanie R. Ramirez, 2019. "An examination of firm licensing behaviour after a payday-loan ban," Applied Economics, Taylor & Francis Journals, vol. 51(46), pages 5090-5103, October.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:46:p:5090-5103
    DOI: 10.1080/00036846.2019.1610709
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