Finance company

Reliable data for personal loan extensions and outstandings of finance companies are, of course, the basic prerequisite to this analysis. The observations of these variables used herein are obtained from an extensive sample survey of the consumer credit industry during 1971 which was sponsored by the National Commission on Consumer Finance . The Survey provides statistics on a state-by-state basis for finance company personal loan extensions and outstandings.

These statistics, when combined with other relevant variables, provide a fairly complete body of economic data for forty-eight states (excluding Alaska and Montana). Prior researchers have had to obtain their supply estimates from reports of small loan licensees to state supervisory authorities and, because of inadequacies in reporting, those estimates have been limited in terms of consistency and the number of states represented. To illustrate the latter problem, the 48 states used in this study may be arrayed in descending order of their mean rate ceiling (which below will be defined as  R CM), and then compared with the prior sample of states complied by Shay, which is typical and perhaps the most widely used of the prior samples. The prior Shay data exclude 18 of these 48 states, and the 18 excluded states are distributed across the array of 48 states as follows: 5 in the top quartile, 1 in the second quartile, 6 in the third quartile, and 6 in the bottom quartile.

This means that most of finance companies the excluded 18 states are low ceiling states (where the effect of the rate ceiling should be most pronounced), such that 12 of the 24 states with ceilings below the array’s median are excluded from the old Shay sample. Moreover, of the 6 excluded states that are above the median, 5 are in the top quartile. The overall result is a serious underrepresentation of both very high and very low ceiling states, which of course severely attenuates the variance of the variables under study and thereby vitiates the prior empirical analyses based on those finance company old data.