THE COST STRUCTURE OF CONSUMER FINANCE SMALL-LOAN OPERATIONS

THE SOCIAL and economic implications of personal borrowing and a renewed interest in consumerism have brought attention to many aspects of consumer finance. The cost behavior of small-loan operations is one of the major factors in the evaluation of regulations for the small-loan industry. The purpose of this paper is to present the results of an empirical investigation of the cost structure of consumer finance company loan branches and to discuss the results in the context of regulations on the licensing of small-loan operations and rate regulations. The scale economies issue and the loan size-cost relationship are of particular interest in this discussion. The present results are compared with previous research on the cost of small-loan operations of consumer finance companies and an attempt is made to clarify some apparent conflicts in the analysis of the scale economies issue. Present results are compared also with cost studies of commercial bank instalment loan departments. Because of the similarity of the operations in the two cases, the results are expected to be basically similar with respect to the scale economies issue.