What a New York Fed Study Reveals About Credit Rationing, Consumer Access, and the Policy Error Behind New York’s Usury Push
The most persistent criticism of rent-to-own (RTO) is also its weakest: that the model exists only because it charges more than traditional credit. Remove high-cost credit, critics argue, and RTO collapses. Cap prices, force transactions into lending law, and consumers will be better off.
A new study from the Federal Reserve Bank of New York quietly demolishes that premise.
Not by studying rent-to-own directly. Not by defending the industry. But by documenting, with modern data and careful econometrics, what actually happens when lawmakers impose interest-rate caps on consumer finance markets.
The answer is not what RTO critics assume.
The New York Fed’s findings validate the function that rent-to-own has served for decades: absorbing unmet demand when traditional credit markets ration access rather than expand it. The study shows that when price ceilings are imposed, credit does not become safer or more equitable. It is reallocated away from the riskiest households altogether. Access contracts. Outcomes do not improve.
In other words, the study explains why rent-to-own persists — and why legislative efforts to collapse it into usury-regulated credit misunderstand both the economics and the consumer reality.
That lesson could not be more relevant as New York lawmakers consider proposals like AB 1726 and its Senate companion, which seek to treat rent-to-own as a credit product subject to the state’s usury cap. Before engaging that bill directly, it is worth understanding what the Federal Reserve itself is now telling us about the consequences of such an approach.
What the New York Fed Studied — and Why It Matters Here
The New York Fed staff report, Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits, examines the effects of state-level interest-rate caps on consumer credit markets. Using detailed credit-bureau data across states and over time, the authors isolate what happens when usury ceilings bind.
This is not theoretical work. It is not advocacy. It is empirical observation.
The study asks a simple question: when you restrict the price of credit, who actually loses access?
The answer is consistent and sobering.
The Central Finding: Price Caps Don’t Fix Credit, They Ration It
The study identifies a clear pattern following the implementation of usury limits.
High-Risk Borrowers Lose Access
Consumers in the lowest credit deciles experience significant reductions in:
- The number of open credit accounts
- Total outstanding balances
Lenders respond predictably to rate ceilings. When they can no longer price for risk, they stop serving high-risk borrowers altogether.
This is not lender malice. It is arithmetic.
Credit Is Reallocated Up the Risk Ladder
Total credit in the state does not meaningfully decline. Instead, lenders shift capital toward borrowers with slightly stronger profiles. Middle-decile consumers gain access as bottom-decile consumers are excluded.
The result is redistribution, not protection.
Delinquency Outcomes Do Not Improve
Perhaps most damaging to the moral case for usury caps: delinquency rates do not meaningfully improve for the excluded borrowers.
Removing credit does not make households more stable. It simply removes formal options.
Why This Study Validates Rent-to-Own’s Economic Role
The New York Fed did not set out to study rent-to-own. But its findings map almost perfectly onto the reason RTO exists.
Rent-to-own serves consumers who are systematically rationed out of traditional credit markets – not because of predatory design, but because risk-based pricing cannot function under regulatory constraints.
When credit exits, households do not stop needing:
- Refrigerators
- Beds
- Washers and dryers
- Computers
- Furniture essential to daily life
The study confirms what RTO operators have long observed: the alternative to flexible access is often no access at all.
RTO Is Not a Substitute for Cheap Credit – It Is a Substitute for No Credit
Critics routinely compare RTO pricing to hypothetical low-APR loans that many customers cannot obtain. The Fed’s data exposes the flaw in that comparison.
For the consumers most affected by usury limits, those loans do not materialize. They are not re-underwritten. They are not refinanced. They are denied.
RTO persists because it does not rely on debt pricing at all.
Structure Matters: Why RTO Avoids the Rationing Trap
The study underscores a structural truth that policy debates often ignore: rationing occurs when access depends on deferred repayment of money.
Rent-to-own is structured differently.
- There is no debt.
- There is no obligation to continue.
- The consumer pays only for time and use.
- Ownership is optional, not assumed.
Because RTO does not require a lender to forecast repayment of principal plus interest, it avoids the risk-pricing bottleneck that usury caps create.
That is not a loophole. It is a different transaction.
The Delinquency Myth – and Why It Fails Here
A common justification for collapsing RTO into lending law is the claim that high-cost arrangements cause financial distress.
The New York Fed study challenges that logic directly.
If restricting access improved consumer outcomes, we would expect delinquency rates to fall after usury limits take effect. They do not.
This suggests a deeper truth: financial instability is driven by income volatility and household precarity, not merely by contract price.
RTO’s flexibility – the ability to return goods without penalty – is designed for that volatility. Traditional credit is not.
What This Means for New York’s Legislative Direction
This study arrives at a critical moment.
New York lawmakers are considering AB 1726 and a companion Senate bill that would effectively treat rent-to-own as a credit product subject to the state’s usury cap.
While this article does not litigate the bill line-by-line, the New York Fed’s findings establish three foundational problems with that approach.
1. Misclassification Creates Predictable Harm
The Fed’s data shows that when lawmakers impose lending rules on transactions that serve high-risk consumers, access shrinks. If RTO is forced into a credit framework it was never designed to operate within, the same rationing dynamics will apply.
The result will not be cheaper access. It will be less access.
2. Substitution Assumptions Are Empirically False
AB 1726 implicitly assumes that consumers excluded from RTO will transition to safer credit alternatives.
The Fed’s study demonstrates that this assumption does not hold. Excluded borrowers do not migrate upward. They disappear from formal markets.
3. Outcomes, Not Intentions, Define Consumer Protection
The study shows that restricting credit does not improve delinquency outcomes. A policy that removes access while failing to improve household stability cannot credibly be called protective.
Why This Study Will Matter in the Coming Debate
The power of the New York Fed study is not rhetorical. It is institutional.
This is not an industry white paper. It is not commissioned advocacy. It is the Federal Reserve documenting what happens when lawmakers rely on price controls instead of access design.
As New York debates whether to subsume rent-to-own under usury law, this study provides:
- Empirical evidence of rationing effects
- Proof that access does not reappear elsewhere
- Confirmation that outcomes do not improve
It does not argue that all consumer finance is benign. It argues that structure matters — and that blunt instruments produce predictable harm.
Conclusion: When Access Is the Variable, Policymakers Forget
Rent-to-own has survived decades of scrutiny not because it evades regulation, but because it solves a problem regulation often creates.
The New York Fed study explains that problem in data rather than anecdotes: when price becomes the only lever policymakers pull, access becomes collateral damage.
New York’s current legislative path risks repeating that mistake.
Before lawmakers decide to eliminate or fundamentally alter RTO under a usury framework, they should grapple with what the Federal Reserve is telling them plainly:
When credit is capped, it does not become fairer.
It becomes scarcer.
And the people left out are the ones rent-to-own exists to serve.
For more information and to review the NY Federal Reserve’ report:
Amromin, Gene, De Giorgi, Giacomo, & Tzur-Ilan, Nitzan.
“Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits.”
Federal Reserve Bank of New York Staff Reports, No. 1173, May 2024.
Federal Reserve Bank of New York.
The Bottom-Line Findings:
1. Vulnerable Consumers Lose Access First
When rate caps are imposed:
- Consumers with the lowest credit scores lose access to credit entirely
- Lenders exit the market for high-risk borrowers
Credit does not become safer or cheaper for these consumers. It disappears.
2. Credit Does Not Shift to “Better” Alternatives
Contrary to common assumptions:
- Excluded consumers do not migrate to banks or credit unions
- Credit is reallocated to slightly safer borrowers instead
This means the most financially fragile households are left out altogether.
3. Financial Outcomes Do Not Improve
The Fed found:
- No meaningful reduction in delinquency
- No evidence of improved financial stability
Restricting access did not protect consumers. It only reduced options.
