Payday-Loan Bans: Evidence of Indirect Effects on Supply

Abstract

In November 2008, Ohio enacted the Short-Term Loan Law which imposed at 28-percent APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply-side of the pawnbroker, precious metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly-unrelated regressions results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97 percent, respectively.

Keywords: Financial Institutions, Alternative Financial Services, Payday Lending, Regulation