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Payday Loan Choices and Consequences

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  • NEIL BHUTTA
  • PAIGE MARTA SKIBA
  • JEREMY TOBACMAN

Abstract

High‐cost consumer credit has proliferated in the past two decades, raising regulatory scrutiny. We match administrative data from a payday lender with nationally representative credit bureau files to examine the choices of payday loan applicants and assess whether payday loans help or harm borrowers. We find consumers apply for payday loans when they have limited access to mainstream credit. In addition, the weakness of payday applicants’ credit histories is severe and longstanding. Based on regression discontinuity estimates, we show that the effects of payday borrowing on credit scores and other measures of financial well‐being are close to zero. We test the robustness of these null effects to many factors, including features of the local market structure.

Suggested Citation

  • Neil Bhutta & Paige Marta Skiba & Jeremy Tobacman, 2015. "Payday Loan Choices and Consequences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(2-3), pages 223-260, March.
    • Handle: RePEc:wly:jmoncb:v:47:y:2015:i:2-3:p:223-260
    DOI: 10.1111/jmcb.12175
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    References listed on IDEAS

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