Question

What are some examples of credit allocation regulation? How can this attempt to create social benefits create costs for a private institution?

a) Predatory lending laws, costs through reduced profit margins
b) Consumer protection regulations, costs through increased compliance burden
c) Interest rate ceilings, costs through reduced lending capacity
d) Fair lending laws, costs through increased administrative overhead

Answer 1

Credit allocation regulations include predatory lending laws, consumer protection regulations, interest rate ceilings, and fair lending laws. They aim to create social benefits but can create costs for private institutions.

Step-by-step explanation:

Some examples of credit allocation regulation include predatory lending laws, consumer protection regulations, interest rate ceilings, and fair lending laws. These regulations aim to create social benefits by protecting consumers from unfair practices and ensuring access to credit for all individuals. However, they can create costs for private institutions. For example, predatory lending laws can reduce profit margins for lenders as they limit the fees and charges they can impose. Consumer protection regulations increase the compliance burden on institutions, leading to additional costs. Interest rate ceilings can reduce a lender's lending capacity, limiting their ability to provide loans. Fair lending laws increase administrative overhead for institutions.