IDEAS home Printed from
   My bibliography  Save this paper

Spillovers From Costly Credit


  • Brian T. Melzer


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.

Suggested Citation

  • Brian T. Melzer, 2013. "Spillovers From Costly Credit," Working Papers 13-11, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:13-11

    Download full text from publisher

    File URL:
    File Function: First version, 2013
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Brian T. Melzer, 2011. "The Real Costs of Credit Access: Evidence from the Payday Lending Market," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 517-555.
    2. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
    3. 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, September.
    4. 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.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. 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).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (Dawn Anderson). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.