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

Tim Zhang; Amity Quinn

paper

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

arXiv:2509.15247

Abstract

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 $23 t o$ 17 and then to $15 per $100 b or r o w e d . E s t ima t in g a l in e a r d e man df u n c t i o n v ia O L S, w e f in d t ha tl o w er in g in t er es t r a t ec a p ss i g ni f i c an tl y in cr e a ses l o an d e man d . W ees t ima t e t ha tt h e$ 8 decrease, from $23 t o$ 15 per $100, r ai se d ann u a l co n s u m er s u r pl u s b y r o ug h l y$ 28.6 million (2012 CAD). A further reduction to $14, s t a r t in g in J an u a r y 2025, w o u l d a dd an o t h er$ 3.9 million per year. These results suggest that stricter interest rate caps can yield substantial consumer welfare gains.