Payday lending regulation
AbstractTo date the debate over payday lending has focused on whether access to such lending is on net beneficial or harmful to consumer welfare. However, payday loans are not one product but many, and different forms of lending may have different welfare implications. The current diversity in payday lending stems from the diverse ways in which states have regulated the industry. This paper attempts to quantify the effects that various regulatory approaches have had on lending terms and usage. Using a novel institutional dataset of over 56 million payday loans, covering 26 states for nearly 6 years, I find that price caps tend to be strictly binding, size caps tend to be less binding, and prohibitions on simultaneous borrowing appear to have little effect on the total amount borrowed. Minimum loan terms affect loan length while maximum loan terms do not. Repeat borrowing appears to be negatively related to rollover prohibitions and cooling-off periods, as well as to higher price caps. Several states have used law changes to sharply cut their rate of repeat borrowing. However, this process has been disruptive, leading to lower lending volumes and, in at least one case, higher delinquency.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-62.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brian T. Melzer, 2011. "The Real Costs of Credit Access: Evidence from the Payday Lending Market," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 517-555.
- Morse, Adair, 2011. "Payday lenders: Heroes or villains?," Journal of Financial Economics, Elsevier, vol. 102(1), pages 28-44, October.
- Donald P. Morgan & Michael R. Strain, 2007. "Payday holiday: how households fare after payday credit bans," Staff Reports 309, Federal Reserve Bank of New York.
- Scott Carrell & Jonathan Zinman, 2008. "In harm’s way? Payday loan access and military personnel performance," Working Papers 08-18, Federal Reserve Bank of Philadelphia.
- Michael A. Stegman, 2007. "Payday Lending," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 169-190, Winter.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.