The Unintended Effects of Interest Rate Caps: Credit Rationing for Risky Borrowers (opens in new tab)

In imperial China, 3 percent was the maximum legal monthly loan rate; charging more was punishable by 40 to 100 blows with the “.” ) Centuries later, many U.S. states are imposing the same cap (without corporal penalties) on alternative credit providers, such as payday, installment, and auto-title lenders, with the goal of lowering credit costs and delinquency for the high-risk borrowers that rely on these funding sources. A concern, however, is that lenders will simply refuse to lend to thes...