Predatory lending in rational world
AbstractRegulators express growing concern over “predatory lending,” which we take to mean lending that reduces the expected utility of borrowers. We present a rational model of consumer credit in which such lending is possible, and identify the circumstances in which it arises with and without competition. Predatory lending is associated with imperfect competition, highly collateralized loans, and poorly informed borrowers. Under most circumstances competition among lenders eliminates predatory lending.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 06-2.
Date of creation: 2006
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-FMK-2006-03-18 (Financial Markets)
- NEP-UPT-2006-03-18 (Utility Models & Prospect Theory)
- NEP-URE-2006-03-18 (Urban & Real Estate Economics)
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