The Economics ofConsumer Lending.ppt

The Economics ofConsumer Lending Todd J. Zywicki Professor of Law George Mason University School of Law Research Fellow, James Buchanan Center Program on Politics, Philosophy, and Economics Overview Substantive Regulation of Consumer Credit Alternatives to Substantive Regulation Consumer Credit Issues in the United States Macroeconomic Effects of Consumer Credit Substantive Regulation Effect of Regulation: Intended Consequences Effect of Regulation: Unintended Consequences Term Substitution/Repricing Product Substitution Rationing Dynamic Effects and Competition Term Repricing Interest Rate Fixed or Variable Annual Fee Quality (Benefits, Hours, Customer Service) Price of Goods Points Term Collateral Costs Insurance Downpayment Balloon Prepayment Penalty Grace Period Default Foreclosure Product Substitution Product Substitution Rationing Historical Evidence Redistribution Effects Empirical Evidence on Effects of State “Anti-Predatory Lending” Laws Rationing “Predatory Lending Laws Can Cause Headaches,” Parma Sun Post (July 10, 2003): When David Sanderson recently applied to a lender for a second mortgage, he was denied for an unusual reason. Undeterred, he went to another lender and was denied again. Same thing happened at a third institution. In all three cases, he was given the same reason for the denial—the lenders thought he lived in Cleveland and claimed that the city’s anti-predatory lending law prevented them from giving him the loan he needed. *** Since Cleveland’s anti-predatory lending law caps interest charges, some lenders don’t give second mortgages or home-equity loans to Cleveland residents having potential credit risks. But Sanderson lives in Fairview Park, a small, inner-ring suburb west of Cleveland. “When we were applying for loans, the companies would key in our zip code, and Cleveland would come up,” he said.*** Desperate for a solution, Sanderson contacted his suburb’s City Hall. Fairview Park Mayor Eileen Patton wrote a letter on hi