Abstract
Usury laws cap the interest rates that lenders can charge. Using data from Prosper.com, an online lending marketplace, I investigate the effects of these laws. The key to my empirical strategy is that there was initially substantial variability in states' interest rate caps, ranging from 6% to 36%. A behind-the-scenes change in loan origination, however, suddenly increased the cap to 36%. The main findings of the study are that higher interest rate caps increase the probability that a loan will be funded, especially if the borrower was previously just "outside the money." I do not find, however, changes in loan amounts and default probability. The interest rate paid rises slightly, probably because online lending is substantially, yet imperfectly, integrated with the general credit market.
| Original language | English |
|---|---|
| Pages (from-to) | 1238-1248 |
| Number of pages | 11 |
| Journal | Review of Economics and Statistics |
| Volume | 95 |
| Issue number | 4 |
| DOIs | |
| State | Published - 28 Oct 2013 |
ASJC Scopus subject areas
- Social Sciences (miscellaneous)
- Economics and Econometrics