31 Mar The result is particularly notable for South Carolina, which prior to its changes had a single-loan size limit of $300
After the first law change the single-loan limit increased to $500 but simultaneous loans were still legal, effectively making it easier to borrow much larger amounts
The pooled regressions found no relationship between simultaneous borrowing prohibitions and total amount borrowed even though amount borrowed, as contructed, merged simultaneous loans together. The law-change regressions support a similar conclusion. Ohio removed its simultaneous borrowing limit, while Virginia instituted a new limit, neither of which appears to have affected total amount borrowed. Approximately 71.5% of all its loans were made simultaneously with at least one other loan, for an average borrowing amount of about $420. However, the total amount borrowed rose only slightly. After the second change simultaneous loans became illegal, and dropped to only 2.4% of loan volume. Average single-loan size increased, leaving total amount borrowed largely unchanged. Overall, it appears that customers were able to borrow the desired amount no matter whether the limit was structured as a size cap or a simultaneous borrowing ban. payday loans in Alabama This suggests that unless states enact much more binding limits on the maximum amount borrowed it may not matter whether or not they also have limits on simultaneous borrowing.
The pooled regressions found that minimum loan terms affect loan length, and the law-change results support that. Only one state changed its laws regarding minimum or maximum loan term: Virginia raised its minimum loan term from 7 days to two times the length of the borrower’s pay cycle. Assuming a standard pay cycle of two weeks, this raises the effective limit by about 21 days. The third column of Table 5 estimates that loan length in Virginia increased nearly 20 days on average as a result, suggesting that the change was binding. OH and WA both exhibit more modest changes in average loan term, though neither directly changed their loan term regulations and Ohio’s change was not statistically significant.
The largest change occurred in Virginia, where delinquency rose nearly 7 percentage points over a base rate of about 4%. The law-change evidence shows a connection between price caps and delinquency, consistent with the pooled regressions. Price caps and delinquency alike dropped in Ohio and Rhode Island, while price caps and delinquency rose in Tennessee and Virginia. The connection between size caps and delinquency found in the pooled regressions gets notably less support: the three states that changed their size caps saw delinquency move in the wrong direction or not at all.
The rate of repeat borrowing also changed in all six states, though the change was large in only four of them. Ohio’s rate increased about 14 percentage points, while South Carolina, Virginia, and Washington decreased their rates by 15, 26, and 33 percentage points, respectively. The pooled regressions indicated that repeat borrowing should decrease with the implementation of rollover prohibitions and cooling-off provisions. Unfortunately no state changed its rollover prohibition so the law-change regressions can provide no evidence either way. South Carolina, Virginia, and Washington all instituted cooling-off provisions and all saw large decreases in repeat borrowing, supporting the pooled regressions. South Carolina in particular saw its largest decrease after its second regulatory change, when it instituted its cooling-off provision. Washington implemented a strict 8-loan per year limit on lending, which can be thought of as an unusual form of cooling-off provision, and saw the largest repeat borrowing decrease of all.
All six states saw statistically significant changes in their rates of loan delinquency
The pooled regressions also suggested that higher fee caps lowered repeat borrowing, and this too gets further support. The two states that raised their fee caps, Tennessee and Virginia, saw drops in repeat borrowing while the two states where they decreased, Ohio and Rhode Island, saw jumps. Though the pooled regressions showed no relationship, the two states that instituted simultaneous borrowing prohibitions, South Carolina and Virginia, saw big drops in repeat borrowing, while Ohio, whose simultaneous borrowing ban was rendered obsolete when lenders began to lend under a new statute, saw a big increase in repeat borrowing.