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Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits

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Abstract

Many states have capped consumer loan interest rates to protect households from high-cost lenders. Using triple-difference and event study analysis, we investigate how these usury limits affect the availability and allocation of credit across households. Consistent with standard price theory, we find that credit to the riskiest borrowers contracts under usury limits without improving delinquencies. More surprisingly, credit to lower risk borrowers expands under usury limits. This reallocation suggests that usury limits have unintended effects that are not entirely explained by standard theory.

Suggested Citation

  • Rajashri Chakrabarti & Daniel Garcia & Donald P. Morgan & Lee Seltzer, 2025. "Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits," Staff Reports 1173, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:102207
    DOI: 10.59576/sr.1173
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    References listed on IDEAS

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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G50 - Financial Economics - - Household Finance - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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