Measuring the Consequences of a Binding Interest Rate Cap on Small-Dollar Installment Loans

57 Pages Posted: 9 Aug 2021

See all articles by Thomas Miller

Thomas Miller

Mississippi State University - Department of Finance and Economics; Consumers' Research

Onyumbe Lukongo

Southern University

Date Written: May 12, 2021

Abstract

Regulated small-dollar installment lenders do not operate within Arkansas, but they do in all six bordering states. We can measure the effects of Arkansas' 17 percent interest rate cap because Arkansas residents obtain installment loans only from out-state lenders. On average, Arkansas residents borrow \$1,051 at an APR of 93 percent, when incorporating travel costs. Perimeter county residents hold 96.8 percent of out-state supplied small-dollar installment loans and interior county residents hold 3.2 percent. Robustness checks show that nonprime borrowers in the interior counties have less access to all sources of credit than do prime borrowers in the perimeter counties.

Keywords: Consumer credit, installment loans, access to credit, interest rate cap, financial regulation

JEL Classification: D14 (Personal Finance); G2 (Financial Institutions and Services)

Suggested Citation

Miller, Thomas and Lukongo, Onyumbe, Measuring the Consequences of a Binding Interest Rate Cap on Small-Dollar Installment Loans (May 12, 2021). Available at SSRN: https://ssrn.com/abstract=3899419 or http://dx.doi.org/10.2139/ssrn.3899419

Thomas Miller (Contact Author)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

Consumers' Research ( email )

Onyumbe Lukongo

Southern University

United States

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