Payday Loan Pricing
University of Kansas School of Business
Ronnie J. Phillips
Colorado State University
January 14, 2009
Networks Financial Institute 2006-WP-05 (revised version)
FRB of Kansas City Paper No. RWP 09-07
We estimate the pricing determinants for 35,098 payday loans originated in Colorado between 2000 and 2006, and generate a number of results with implications for public policy. We find evidence consistent with classical price competition early in the sample, but as time passed these competitive effects faded and the data become more consistent with a variety of strategic pricing practices. On average, loan prices moved upward toward the legislated price ceiling over time, consistent with implicit collusion facilitated by price focal points. Large multi-store payday firms tended to charge higher prices than independent single-store operators, but were less likely to exploit inelastic demand near military bases and in largely minority neighborhoods. Of the three loan pricing measures used in our analysis, the annual percentage interest rate (APR) favored by regulators and analysts performed poorly.
Number of Pages in PDF File: 48
Keywords: payday lending, price ceilings, strategic pricing
JEL Classification: G21, D14
Date posted: December 11, 2007 ; Last revised: March 12, 2013
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