Showing papers on "Credit risk published in 1969"

Consumer Credit Charges and Credit Availability

Abstract: Recent proposals to unify Small Loan Laws raise some interesting questions about the economic impact of finance charge ceilings on credit availability at consumer finance companies. The Tentative Draft of the Uniform Consumer Credit Code proposed by the National Conference of Commissioners on Uniform State Laws urges all states to adopt similar small loan statutes concerning regulation of maximum loan sizes, lender licensing, collection practices, credit disclosure, and finance charge ceilings.' Of particular concern is whether the adoption of a Uniform Small Loan Law will cause lenders to liberalize their credit policies in states where finance charge ceilings are now lower than that recommended in the proposed code; and conversely, whether a uniform rate lower than present rates will force lenders to restrict credit and tighten credit standards to the less creditworthy. The purpose of this paper is first to view the problem in proper perspective by offering a general background of the relevant research on this topic, and second, to test empirically the relationship between credit availability and finance charge ceilings by comparing borrower credit quality at high and low rate lenders. If borrower quality is significantly poorer at lenders charging relatively high rates as economic analysis would suggest, this implies that high rate ceilings encourage credit expansion at consumer finance companies. This study offers empirical evidence suggesting that borrower quality may not be significantly poorer at high rate lenders.