2017/11/01 by Colleen Honigsberg, Robert J. Jackson, Richard Squire
Business, Management and Accounting · Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Financial Literacy, Pension, Retirement Analysis #Housing Market and Economics
paper · doi:10.1086/695808
crossref issued 2017/11/01 · crossref published 2017/11/01 · crossref published-print 2017/11/01 · openalex publication_date 2017/11/01 · crossref created 2018/05/03 · crossref deposited 2018/05/03 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/26 · crossref indexed 2026/07/31
We use a natural experiment—an unexpected judicial decision—to study how the enforceability of debt contracts affects consumer lending. In May 2015, a federal court unexpectedly held that the usury statutes of three states—Connecticut, New York, and Vermont—applied to certain loans that market participants had assumed were exempt from those statutes. The case introduced substantial uncertainty about whether borrowers affected by the decision were under any legal obligation to repay principal or interest on their loans. Using proprietary data from three marketplace-lending platforms, we use a difference-in-differences design to study the decision’s effects. We find no evidence that borrowers defaulted strategically as a result of the decision. However, the decision reduced credit availability for higher-risk borrowers in affected states. Secondary-market data indicate that the price of notes backed by above-usury loans issued to borrowers in affected states declined, particularly when those borrowers were late on their payments.