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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: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-32.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
    3. Paige M. 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)

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    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. Can Cui, 2017. "Cash-on-hand and demand for credit," Empirical Economics, Springer, vol. 52(3), pages 1007-1039, May.
    2. 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.

    More about this item

    Keywords

    Payday loans ; Public policy;

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    1. Economic Logic blog

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