Legal restrictions on interest rates and consumer credit allocation: the case of usury rates in France

This paper studies the effect of usury law on the dynamics of household credit allocation in France. The main hypothesis herein is that banks will have progressively fewer possibilities to hedge against credit risk in this sector due to decreasing usury thresholds. Consequently, households perceived as being rather risky will become increasingly credit constrained. To quantify credit constraints, I measured bank closures in communities where banking presence is weak, Internet coverage is limited, and households tend to be risky borrowers. Adopting the econometric technique enables us to analyze the life span of a bank branch. The main variables examined are the average interest rates on the different types of credit granted to houselholds by a given bank branch.