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Payday Loan Choices and Consequences

Author

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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
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    File URL: http://hdl.handle.net/10.1111/jmcb.12175
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    Citations

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    Cited by:

    1. Mary Zaki, 2016. "Access to Short-term Credit and Consumption Smoothing within the Paycycle," Working Papers 2016.07, Fondazione Eni Enrico Mattei.
    2. repec:eee:ecolet:v:177:y:2019:i:c:p:1-4 is not listed on IDEAS
    3. repec:spr:minsoc:v:17:y:2018:i:1:d:10.1007_s11299-019-00199-z is not listed on IDEAS
    4. John Eric Humphries & Nicholas Mader & Ahmed Daniel Tannenbaum & Winnie van Dijk, 2019. "Does Eviction Cause Poverty? Quasi-Experimental Evidence from Cook County, IL," Cowles Foundation Discussion Papers 2186, Cowles Foundation for Research in Economics, Yale University.
    5. 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.
    6. Terri Friedline & Nancy Kepple, 2017. "Does Community Access to Alternative Financial Services Relate to Individuals’ Use of These Services? Beyond Individual Explanations," Journal of Consumer Policy, Springer, vol. 40(1), pages 51-79, March.
    7. de Meza, David & Reito, Francesco, 2019. "Too Little Lending: A Problem of Symmetric Information," MPRA Paper 93700, University Library of Munich, Germany.
    8. Can Cui, 2017. "Cash-on-hand and demand for credit," Empirical Economics, Springer, vol. 52(3), pages 1007-1039, May.
    9. repec:spr:empeco:v:56:y:2019:i:3:d:10.1007_s00181-018-1447-2 is not listed on IDEAS
    10. Christine L. Dobridge, 2016. "For Better and for Worse? Effects of Access to High-Cost Consumer Credit," Finance and Economics Discussion Series 2016-056, Board of Governors of the Federal Reserve System (US).
    11. Zaki, Mary, 2016. "Access to Short-term Credit and Consumption Smoothing within the Paycycle," ET: Economic Theory 232213, Fondazione Eni Enrico Mattei (FEEM).
    12. repec:eee:quaeco:v:64:y:2017:i:c:p:94-107 is not listed on IDEAS
    13. Kabir Dasgupta & Brenden J. Mason, 2019. "The Effect of Interest Rate Caps on Bankruptcy: Synthetic Control Evidence from Recent Payday Lending Bans," Working Papers 2019-04, Auckland University of Technology, Department of Economics.
    14. 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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