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Demand and consumer surplus in the payday-loan market: Evidence from British Columbia

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  • Tim Zhang
  • Amity Quinn

Abstract

This study examines how interest rate caps affect the demand for payday loans, using aggregate data from British Columbia (2012--2019) during which the province's maximum fee was reduced from \$23 to \$17 and then to \$15 per \$100 borrowed. Estimating a linear demand function via OLS, we find that lowering interest rate caps significantly increases loan demand. We estimate that the \$8 decrease, from \$23 to \$15 per \$100, raised annual consumer surplus by roughly \$28.6 million (2012 CAD). A further reduction to \$14, starting in January 2025, would add another \$3.9 million per year. These results suggest that stricter interest rate caps can yield substantial consumer welfare gains.

Suggested Citation

  • Tim Zhang & Amity Quinn, 2025. "Demand and consumer surplus in the payday-loan market: Evidence from British Columbia," Papers 2509.15247, arXiv.org, revised Sep 2025.
    • Handle: RePEc:arx:papers:2509.15247
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    1. David G Jenkins & Pedro F Quintana-Ascencio, 2020. "A solution to minimum sample size for regressions," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-15, February.
    2. Fekrazad, Amir, 2020. "Impacts of interest rate caps on the payday loan market: Evidence from Rhode Island," Journal of Banking & Finance, Elsevier, vol. 113(C).
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