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In Harm's Way? Payday Loan Access and Military Personnel Performance

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  • Scott Carrell
  • Jonathan Zinman

Abstract

Does borrowing at 400% APR do more harm than good? The U.S. Department of Defense thinks so and successfully lobbied for a 36% APR cap on loans to servicemen. But existing evidence on how access to high-interest debt affects borrowers is inconclusive. We estimate effects of payday loan access on enlisted personnel using exogenous variation in Air Force rules assigning personnel to bases across the United States, and within-state variation in lending laws over time. Airmen job performance and retention declines with payday loan access, and severely poor readiness increases. These effects are strongest among relatively inexperienced and financially unsophisticated airmen.

Suggested Citation

  • Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
  • Handle: RePEc:oup:rfinst:v:27:y:2014:i:9:p:2805-2840.
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    8. David S. Lyle, 2006. "Using Military Deployments and Job Assignments to Estimate the Effect of Parental Absences and Household Relocations on Children's Academic Achievement," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 319-350, April.
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    Cited by:

    1. John Y. Campbell & Howell E. Jackson & Brigitte C. Madrian & Peter Tufano, 2011. "Consumer Financial Protection," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 91-114, Winter.
    2. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
    3. Saengchote, Kanis & Tirapat, Sunti, 2017. "What happens when we forget? The effect of removing adverse information on access to credit," Economics Letters, Elsevier, vol. 151(C), pages 96-99.
    4. Richard W. Evans, 2012. "Determinants of Short-term Consumer Lending Interest Rates," BYU Macroeconomics and Computational Laboratory Working Paper Series 2012-07, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
    5. Taylor Canann & Richard Evans, 2015. "Determinants of Short-term Lender Location and Interest Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(3), pages 235-262, December.
    6. Alex Kaufman, 2013. "Payday lending regulation," Finance and Economics Discussion Series 2013-62, Board of Governors of the Federal Reserve System (U.S.).
    7. Linardi, Sera & Tanaka, Tomomi, 2013. "Competition as a savings incentive: A field experiment at a homeless shelter," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 240-251.
    8. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    9. Oren Rigbi, 2013. "The Effects of Usury Laws: Evidence from the Online Loan Market," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1238-1248, October.
    10. Wilson Bart J & Findlay David W. & Meehan James W. & Wellford Charissa & Schurter Karl, 2010. "An Experimental Analysis of the Demand for Payday Loans," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, October.
    11. Cuffe, Harold E. & Gibbs, Christopher G., 2017. "The effect of payday lending restrictions on liquor sales," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 132-145.
    12. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2016. "International Comparative Household Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 111-144, October.
    13. Zinman, Jonathan, 2010. "Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 546-556, March.
    14. Cambpbell, John Y. & Jackson, Howell Edmunds & Madrian, Brigitte & Tufano, Peter, 2010. "The Regulation of Consumer Financial Products: An Introductory Essay with Four Case Studies," Scholarly Articles 4450128, Harvard Kennedy School of Government.
    15. Dettling, Lisa J. & Hsu, Joanne W., 2017. "Minimum Wages and Consumer Credit : Impacts on Access to Credit and Traditional and High-Cost Borrowing," Finance and Economics Discussion Series 2017-010, Board of Governors of the Federal Reserve System (U.S.), revised 03 Nov 2017.
    16. Parise, Gianpaolo & Peijnenburg, Kim, 2017. "Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities," CEPR Discussion Papers 11900, C.E.P.R. Discussion Papers.
    17. Gianpaolo Parise & Kim Peijnenburg, 2017. "Understanding the determinants of financial outcomes and choices: the role of noncognitive abilities," BIS Working Papers 640, Bank for International Settlements.
    18. repec:pit:wpaper:484 is not listed on IDEAS
    19. Barth, James R. & Hilliard, Jitka & Jahera, John S. & Sun, Yanfei, 2016. "Do state regulations affect payday lender concentration?," Journal of Economics and Business, Elsevier, vol. 84(C), pages 14-29.
    20. Jonathan Zinman, 2014. "Consumer Credit: Too Much or Too Little (or Just Right)?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 209-237.
    21. repec:eee:quaeco:v:64:y:2017:i:c:p:94-107 is not listed on IDEAS
    22. William L. Skimmyhorn, 2016. "Comparing Military and Civilian Household Finances: Descriptive Evidence from Recent Surveys," Journal of Consumer Affairs, Wiley Blackwell, vol. 50(2), pages 471-483, July.
    23. John P. Caskey, 2010. "Payday lending: new research and the big question," Working Papers 10-32, Federal Reserve Bank of Philadelphia.
    24. Neil Bhutta & Jacob Goldin & Tatiana Homonoff, 2016. "Consumer Borrowing after Payday Loan Bans," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 225-259.

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