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The Cost of Privacy. The Impact of the California Consumer Protection Act on Mortgage Markets

Author

Listed:
  • Manish Gupta

    (Nottingham University Business School)

  • Danny McGowan

    (University of Birmingham)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

Abstract

We study how the introduction of a law protecting consumer data privacy affects the cost of credit in the US mortgage market. Our estimates reveal that the California Consumer Protection Act increases loan spreads charged by banks by 8 basis points but that it has no effect on the fixed origination costs charged to borrowers. In contrast, nonbanks do not charge more, possibly because they often resell to government-sponsored enterprises thereby minimizing their compliance costs. Banks also reduce their supply of credit more in lower-income areas, consistent with more informationally intense data collection practices there potentially exposing them to larger legal costs. In sum, our findings suggest that banks pass the CCPA compliance costs to borrowers through higher interest rates and reduce their legal exposure by curtailing credit where more data need to be collected.

Suggested Citation

  • Manish Gupta & Danny McGowan & Steven Ongena, 2023. "The Cost of Privacy. The Impact of the California Consumer Protection Act on Mortgage Markets," Swiss Finance Institute Research Paper Series 23-25, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2325
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    More about this item

    Keywords

    Consumer Data Privacy; Shadow Banks; Mortgages; Regulatory Costs;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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