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http://ssrn.com/abstract=1032621
 
 

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Payday Holiday: How Households Fare After Payday Credit Bans


Donald P. Morgan


Federal Reserve Bank of New York

Michael R. Strain


American Enterprise Institute

February 1, 2008

FRB of New York Staff Report No. 309

Abstract:     
Payday loans are widely condemned as a “predatory debt trap.” We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005. Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems—contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check “protection” sold by credit unions and banks or loans from pawnshops.

Number of Pages in PDF File: 49

Keywords: payday credit, consumer welfare, bounced-check protection, informal bankruptcy

JEL Classification: G21, G28, I38

working papers series


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Date posted: November 26, 2007 ; Last revised: July 13, 2011

Suggested Citation

Morgan, Donald P. and Strain, Michael R., Payday Holiday: How Households Fare After Payday Credit Bans (February 1, 2008). FRB of New York Staff Report No. 309. Available at SSRN: http://ssrn.com/abstract=1032621 or http://dx.doi.org/10.2139/ssrn.1032621

Contact Information

Donald P. Morgan (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
Research Department
New York, NY 10045
United States
212-720-6573 (Phone)
Michael R. Strain
American Enterprise Institute ( email )
1150 17th Street, N.W.
Washington, DC 20036
United States
HOME PAGE: http://sites.google.com/site/mrstrain/
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