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Payday lending: new research and the big question

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  • John P. Caskey

Abstract

Payday lending is controversial. In the states that allow it, payday lenders make cash loans that are typically for $500 or less that the borrower must repay or renew on his or her next payday. The finance charge for the loan is usually 15 to 20 percent of the amount advanced, so for a typical two-week loan the annual percentage interest rate is about 400 percent. In this article, the author briefly describes the payday lending business and explains why it presents challenging public policy issues. The heart of this article, however, surveys recent research that attempts to answer what the author calls the \"big question,\" one that is fundamental to the public policy dispute: Do payday lenders, on net, exacerbate or relieve customers' financial difficulties?

Suggested Citation

  • John P. Caskey, 2010. "Payday lending: new research and the big question," Working Papers 10-32, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:10-32
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2010/wp10-32.pdf
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    References listed on IDEAS

    as
    1. Karlan, Dean S. & Zinman, Jonathan, 2009. "Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila," Center Discussion Papers 52600, Yale University, Economic Growth Center.
    2. Karlan, Dean & Zinman, Jonathan, 2009. "Expanding Microenterprise Credit Access: Randomized Supply Decisions to Estimate the Impacts in Manila," Working Papers 68, Yale University, Department of Economics.
    3. 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.
    4. Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
    5. Michael A. Stegman, 2007. "Payday Lending," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 169-190, Winter.
    6. 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.
    7. Paige Marta Skiba & Jeremy Tobacman, 2007. "Measuring the individual-level effects of access to credit: evidence from payday loans," Proceedings 1069, Federal Reserve Bank of Chicago.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Are payday loans any good?
      by Economic Logician in Economic Logic on 2011-01-03 21:14:00

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    Cited by:

    1. McKernan, Signe-Mary & Ratcliffe, Caroline & Kuehn, Daniel, 2013. "Prohibitions, price caps, and disclosures: A look at state policies and alternative financial product use," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 207-223.
    2. Zibei Chen & Terri Friedline & Catherine M. Lemieux, 2022. "A National Examination on Payday Loan Use and Financial Well-being: a propensity score matching Approach," Journal of Family and Economic Issues, Springer, vol. 43(4), pages 678-689, December.
    3. J. Brandon Bolen & Gregory Elliehausen & Thomas W. Miller, 2020. "Do Consumers Need More Protection From Small‐Dollar Lenders? Historical Evidence And A Roadmap For Future Research," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1577-1613, October.
    4. Doris Neuberger & Udo Reifner, 2020. "Systemic Usury and the European Consumer Credit Directive," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 89(1), pages 115-132.
    5. Can Cui, 2017. "Cash-on-hand and demand for credit," Empirical Economics, Springer, vol. 52(3), pages 1007-1039, May.
    6. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2012. "Can an interest-free credit facility be more efficient than a usurious payday loan?," Working Papers 12008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    7. Desai, Chintal A. & Elliehausen, Gregory, 2017. "The effect of state bans of payday lending on consumer credit delinquencies," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 94-107.
    8. Robert Mayer, 2013. "When and Why Usury Should be Prohibited," Journal of Business Ethics, Springer, vol. 116(3), pages 513-527, September.

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    Keywords

    Payday loans; Public policy;

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