Debt balances for the riskiest borrowers fell by around $2,000 within five quarters of states imposing 36 percent interest rate caps, yet delinquency rates remained unchanged, according to a new staff report published June 3, 2026, by researchers at the Federal Reserve Bank of New York. The findings suggest that usury limits—designed to protect high-risk borrowers from expensive payday and installment loans—may instead be rationing them out of the credit market entirely. The authors examined three states that enacted 36 percent rate caps between 2016 and 2022: Illinois, North Dakota, and South Dakota.
The study analyzed household-level data from the New York Fed Consumer Credit Panel/Equifax, which tracks over 35 million borrowers—representing 5 percent of all Equifax-monitored households. Researchers sorted borrowers into ten equal-sized groups based on credit scores, with the lowest-scoring group (decile 1) showing an average loan delinquency rate over six times higher than other groups. After rate caps took effect, loan balances for the riskiest decile dropped about 8 percent, while balances for safer borrowers remained largely unchanged. Using regression analysis comparing treated states to control states without caps, the researchers found that debt balances of the riskiest borrowers fell by around $2,000 relative to control groups as of five quarters after implementation. Meanwhile, the share of delinquent accounts (90+ days overdue) for the riskiest borrowers was essentially unchanged, even as delinquency for somewhat lower-risk households tended to fall.
The report finds that "our findings square better with" the prediction that rate caps produce less credit rather than cheaper credit for high-risk borrowers, "calling into question the benefits of these laws for high-risk borrowers." Before caps were imposed, the study showed that "the average loan balances of the riskiest borrowers in rate-cap states were not significantly different" from control states, validating the comparison. The authors note that lower debt balances "might be salutary if they reflect that riskier borrowers are avoiding 'debt traps,'" yet the unchanged delinquency rates suggest no such benefit materialized.
The mechanism behind credit rationing is straightforward, according to the report's economic model: lenders charge high-risk borrowers higher interest rates to compensate for higher expected loan losses. When a usury cap forces lenders to charge below the market equilibrium rate, they contract the quantity of loans supplied. If profits from high-risk loans don't cover the fixed cost of providing them, lenders may entirely refuse to make any loans to high-risk borrowers—a situation the report calls credit rationing. This is especially likely because less creditworthy borrowers typically take out relatively small loans, making the economics even less attractive for lenders under caps. The 36 percent standard itself traces back to credit reform in the early 20th century, when the Russell Sage Foundation recommended a 3.5 percent monthly cap to replace prevailing usury limits that were considered too low; thirty-four states subsequently raised caps to between 36 and 42 percent.
The debate over rate caps is intensifying nationally. In 2007, rates on loans to military staff were capped at 36 percent—marking the first-ever national usury limit in the U.S. Now, a bill currently before Congress, the Predatory Loan Elimination Act, would extend the 36 percent cap across the entire country. The New York Fed researchers plan to examine in a follow-up post whether lenders reallocate credit to somewhat lower-risk borrowers in response to rate caps. For now, the evidence suggests that usury limits may be shutting the riskiest borrowers out of formal credit markets without delivering the intended protection from debt traps.