Predatory lending in rational world

Philip Bond, David K. Musto and Bilge Yilmaz

No 06-2, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Regulators express growing concern over ?predatory lending,? which we take to mean lending that reduces the expected utility of borrowers. We present a rational model of consumer credit in which such lending is possible, and identify the circumstances in which it arises with and without competition. Predatory lending is associated with imperfect competition, highly collateralized loans, and poorly informed borrowers. Under most circumstances competition among lenders eliminates predatory lending.

Keywords: Predatory; lending (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-fmk, nep-upt and nep-ure
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Citations: View citations in EconPapers (2)

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