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

Abstract

We study how compliance costs of a data privacy law, the California Consumer Protection Act (CCPA), affects mortgage finance. Lenders pass compliance costs to borrowers by raising interest rates, making the average prime mortgage costlier by $4,350. The CCPA imposes compliance costs of $880,000 on the average bank, while nonbanks share the costs with government-sponsored enterprises. Although loan risk increases, competition from nonbanks prevents banks from pricing the risk. Banks respond by reducing credit by 3.4%. The fixed compliance burden creates economies of scale in lending, leading to regressive credit. Market-based finance crowds out bank finance due to the compliance costs.

Keywords: Consumer data privacy, compliance costs, nonbanks, mortgages

JEL Classification: D12, G21, G23, G28