The Economic Effects of Regulation: A Case Study of the Consumer Finance Industry

Abstract

The perennial controversy over the desirability of more or less direct regulation of business has generated surprisingly few empirical studies of the effects of this kind of regulation. This study illustrates the nature of the pervasive economic effects of direct regulation. It is a case study of the impact which ceilings on interest rates and maximum limits on sizes (here called loan limits) have on the characteristics of services, the market structure, industry size, and earnings of lenders in the consumer finance industry. The consumer finance industry comprises the cash operations of finance companies which are regulated by special state statutes. Each state sets a single maximum limit on the sizes of loans which