Spillovers From Costly Credit
Recent research on the effects of credit access among low- and moderate-income households finds that high-cost payday loans exacerbate, rather than alleviate, financial distress for a subset of borrowers (Melzer 2011; Skiba and Tobacman 2011). In this study I find that others, outside the borrowing household, bear a portion of these costs too: households with payday loan access are 20% more likely to use food assistance benefits and 10% less likely to make child support payments required of non-resident parents. These findings suggest that as borrowers accommodate interest and principal payments on payday loan debt, they prioritize loan payments over other liabilities like child support payments and they turn to transfer programs like food stamps to supplement the household’s resources. To establish this finding, the analysis uses a measure of payday loan access that is robust to the concern that lender location decisions and state policies governing payday lending are endogenous relative to household financial condition. The analysis also confirms that the effect is absent in the mid-1990s, prior to the spread of payday lending, and that the effect grows over time, in parallel with the growth of payday lending.
|Date of creation:||Mar 2013|
|Contact details of provider:|| Postal: 4600 Silver Hill Road, Washington, DC 20233|
Phone: (301) 763-6460
Fax: (301) 763-5935
Web page: http://www.census.gov/ces
More information through EDIRC
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.:
- John Y. Campbell & Stefano Giglio & Parag Pathak, 2009.
"Forced Sales and House Prices,"
NBER Working Papers
14866, National Bureau of Economic Research, Inc.
- Carolyn J. Heinrich & Brett C. Burkhardt & Hilary M. Shager, 2011. "Reducing child support debt and its consequences: Can forgiveness benefit all?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(4), pages 755-774, 09.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cen:wpaper:13-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fariha Kamal)
If references are entirely missing, you can add them using this form.