Demand and consumer surplus in the payday-loan market: Evidence from British Columbia

This study examines how interest rate caps affect the demand for payday loans, using aggregate data from British Columbia (2012–2019) during which the province’s maximum fee was reduced from $23to$17 and then to $15 per $100borrowed\mathrm{.}EstimatingalineardemandfunctionviaOLS,wefindthatloweringinterestratecapssignificantlyincreasesloandemand\mathrm{.}Weestimatethatthe$8 decrease, from $23to$15 per $100,raisedannualconsumersurplusbyroughly$28.6 million (2012 CAD). A further reduction to $14,startinginJanuary2025,wouldaddanother$3.9 million per year. These results suggest that stricter interest rate caps can yield substantial consumer welfare gains.