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arXiv · 2509.15247

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

Tim Zhang·Amity Quinn
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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 to $17 and then to \$15 per $100 borrowed. Estimating a linear demand function via OLS, we find that lowering interest rate caps significantly increases loan demand. We estimate that the $8 decrease, from $23 to $15 per $100, raised annual consumer surplus by roughly $28.6 million (2012 CAD). A further reduction to $14, starting in January 2025, would add another $3.9 million per year. These results suggest that stricter interest rate caps can yield substantial consumer welfare gains.

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Tim Zhang, Amity Quinn. 2025-09-17. Demand and consumer surplus in the payday-loan market: Evidence from British Columbia. https://arxiv.org/abs/2509.15247

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