Demand and consumer surplus in the payday-loan market: Evidence from British Columbia

2025/09/17 by Tim Zhang, Zhang, Tim, Amity Quinn +1
Economics, Econometrics and Finance · #FOS: Economics and business #General Economics (econ.GN) #Housing Market and Economics

paper · pdf · doi:10.48550/arxiv.2509.15247

openalex publication_date 2025/09/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

This study examines how interest rate caps affect the demand for payday loans, using aggregate data from British Columbia (2012--2019) during which the province's maximum fee was reduced from 23 to 17 and then to $15 per 100 borrowed. Estimating a linear demand function via OLS, we find that lowering interest rate caps significantly increases loan demand. We estimate that the 8 decrease, from 23 to 15 per 100, raised annual consumer surplus by roughly 28.6 million (2012 CAD). A further reduction to 14, starting in January 2025, would add another 3.9 million per year. These results suggest that stricter interest rate caps can yield substantial consumer welfare gains.

Citations

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