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Payday lenders: Heroes or villains?

  • Morse, Adair
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    Does access to high-interest credit (payday loans) exacerbate or mitigate individual financial distress. Using natural disasters as an exogenous shock, I apply a propensity score-matched, triple-difference specification to identify a causal relation between welfare and access to credit. California foreclosures increase by 4.5 units per 1,000 homes after a natural disaster. The existence of payday lenders mitigates 1.0-1.3 of them, with the caveat that not all payday loans are for emergency distress. Payday lenders also mitigate larcenies (but not burglaries or vehicle thefts). In a placebo test of disasters covered by homeowner insurance, payday lending has no mitigation effect.

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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 102 (2011)
    Issue (Month): 1 (October)
    Pages: 28-44

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    Handle: RePEc:eee:jfinec:v:102:y:2011:i:1:p:28-44
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