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Recently-Released Academic Study Finds Illinois Rate Cap Decreased Credit Availability and Harmed Borrowers’ Financial Well-Being

By January 12, 2023April 26th, 2024No Comments

ARLINGTON, Va. (January 12, 2022)—According to a recent study released by three leading economists, Illinois’ strict interest rate cap on personal loans has “significantly decreased the availability of small-dollar credit, particularly to subprime borrowers, and worsened the financial well-being of many consumers.”

Using credit bureau data to conduct a comparative analysis for Illinois and its neighboring state, Missouri (which does not have legislated interest rate caps), the authors found:

  • The interest rate cap decreased the number of loans to subprime borrowers by 44 percent.
  • The interest rate cap increased the average loan size to subprime borrowers by 40 percent.

In addition, the authors reviewed the results of a survey of those who had previously taken out loans above the legislated interest rate cap, finding:

  • Most borrowers say they have been unable to borrow money when they needed it after the interest rate cap went into effect.
  • Only 11 percent of survey respondents said that their financial well-being increased after the interest rate cap went into effect.
  • 79 percent of survey respondents said they wanted the option to return to their previous lender, even though they may no longer offer loans in Illinois after the rate cap’s imposition.

The study was authored by Dr. Brandon Bolen, Assistant Professor of Economics at Mississippi College; Dr. Gregory Elliehausen, Principal Economist in the Consumer Finance Section at the Federal Reserve; and Dr. Thomas Miller, Professor of Finance at Mississippi State University.

“This study glaringly confirms what we have long warned about when interest rate caps are imposed in Illinois and around the country,” said Andrew Duke, Executive Director of the Online Lenders Alliance. “Interest rate caps do not reduce the cost of credit, they only make it more difficult for consumers who need credit to access it. And in states like Illinois where interest rate caps are implemented, consumers are left worse off, with fewer and less desirable financial options when they have credit needs.”

As noted in the study, interest rate caps on small dollar lending make offering such loans difficult, if not impossible, because “administrative costs are high relative to loan amount for small loans, and … for short-term loans, administrative costs are especially large relative to loan size.” Furthermore, they add that “for many consumer credit products, administrative costs are mostly fixed, in the short run, and quite large relative to the dollar amount borrowed. Consequently, the interest rate for small-dollar consumer loans must be high enough to cover the lender’s costs plus a competitive return on the lender’s investment.” They also note that lenders must be compensated for bearing the increased risk of lending to credit vulnerable populations.


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The Online Lenders Alliance (OLA) is the first trade association in FinTech. OLA is focused on credit inclusion, bringing together a diverse group of innovative companies who share a common goal: to serve hardworking Americans who deserve access to trustworthy credit. Our members are entrepreneurs, publicly-traded companies, lenders, credit bureaus, advertisers, lead generators, compliance professionals, and software developers who are leveraging technology to responsibly improve consumers’ financial health. Consumer protection is our top priority and OLA members abide by a rigorous set of Best Practices and Code of Conduct to ensure consumers are fully informed and fairly treated. For more information, please visit


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