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

64 Pages Posted: 31 Mar 2023 Last revised: 29 Aug 2023

See all articles by Manish Gupta

Manish Gupta

Nottingham University Business School

Danny McGowan

Durham University

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 2023

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

Suggested Citation

Gupta, Manish and McGowan, Danny and Ongena, Steven R. G., The Cost of Privacy. The Impact of the California Consumer Protection Act on Mortgage Markets. (August 2023). Swiss Finance Institute Research Paper No. 23-25, Available at SSRN: https://ssrn.com/abstract=4404636 or http://dx.doi.org/10.2139/ssrn.4404636

Manish Gupta

Nottingham University Business School ( email )

University of Nottingham
Jubilee Campus
Nottingham, NG8 1BB
United Kingdom

Danny McGowan

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Steven R. G. Ongena (Contact Author)

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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