The Impact of Usury Ceilings on Consumer Credit

Abstract

Usury regulation is a topic with a long history of discussion; nevertheless the debate over the merits of usury regulation continues to the present day. In the early part of the 1980s the rapid rise in nominal interest rates swung the debate in favor of the opponents of usury ceilings. During this period a quarter of the states enacted legislation which largely eliminated their usury ceilings on consumer credit. However with the return of lower interest rates in the middle part of the decade the argument for low usury ceilings gained increasing support, and as a result several states lowered their usury ceilings on some types of credit. The first formal economic model of the impact of usury ceilings was outlined by Blitz and Long [8]. Their insightful analysis has led researchers to focus on two hypotheses concerning the impact of usury ceilings on consumer credit. HYPOTHESIS 1. Usury ceilings reduce the quantity of credit obtained by high-risk borrowers

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