The Effects of Government Regulations on the Supply of Pawn Loans: Evidence from 51 Jurisdictions in the U.S.

Abstract

We contribute to the modest amount of existing empirical research on the fringe banking industry by examining the effects of two jurisdiction-specific restrictive regulations on the supply of pawn loans. Controlling for poverty levels, education levels, and population density, state-by-state data presented in this paper from the 51 political jurisdictions in the United States suggests considerable effects in expected ways on five aspects of supply from the two regulations. More specifically, the study provides support for the suggestion that interest rate ceilings and a requirement to return excess proceeds from the sale of collateral items tend to reduce the number of store hours, loan/value ratios, the number of very small loans made, and the number of existing pawnshops.