Dr. Thomas J. Miller, Jr. Releases Study on the Effects of Interest Rate Caps on Consumer Access to Credit in Illinois

WASHINGTON, March 8, 2023 /PRNewswire/ -- Dr. Thomas J. Miller, Jr. of Mississippi State University announced the release of a new study, "Effects of Illinois' 36% Interest Rate Cap on Small-Dollar Credit Availability and Financial Well-Being" in collaboration with fellow finance experts J. Brandon Bolen of Mississippi College and Gregory Elliehausen, Board of Governors, Federal Reserve System (retired). The authors examined the effects of a rate cap law in Illinois and found that it led to a reduction in credit access for consumers.

In 2021, Illinois imposed a 36% interest-rate cap on all loans under $40,000 through the Predatory Lending Prevention Act (PLPA). Banks and credit unions are exempt from this rate cap. To evaluate the impact of the law on borrowers, Dr. Miller and his co-authors compared Illinois to Missouri, a state that does not enforce a rate cap.

The findings confirmed that the Illinois law restricted access to credit, particularly to lower-income consumers. In the six months that followed the imposition of the rate cap, the data show that lenders originated significantly fewer loans to subprime borrowers. Notably, the number of loans to subprime, high-risk borrowers fell by 44%.

To examine the financial wellbeing of Illinois residents in need of a loan, Dr. Miller conducted a survey. In the survey, almost 40% of participants reported their financial wellbeing declined since the enforcement of rate caps.

"This study illustrates what happens when interest-rate cap legislation takes effect. Demand for small-dollar loans is not going away, but when all-in interest rate caps are imposed, access to credit is reduced, said Dr. Tom Miller. "The people most harmed by rate caps are subprime borrowers. Our data show a notable decline in the financial well-being of Illinois consumers. Policymakers should take a long look at what happened in Illinois and think twice about the effect that rate cap legislation will have on limiting access to credit in their states, particularly for those who are among the most financially vulnerable in our society."

To read the full study, click HERE.

SOURCE Dr. Thomas J. Miller, Jr.