Payday Lenders: Heroes or Villains?
University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)
I ask whether access to high-interest credit (payday loans) exacerbates or mitigates individual financial distress. Using natural disasters as an exogenous shock, I apply a propensity score matched, triple difference specification to identify a causal relationship between access-to-credit and welfare. I find that California foreclosures increase after disasters, but the existence of payday lenders mitigates half of the distress impact (1.2 foreclosures per 1,000 homes). Lenders also mitigate 2.67 larcenies per 1,000 households with no effect on burglaries or vehicle thefts. My methodology demonstrates that my results apply to ordinary personal emergencies, with the caveat that it may be that not all payday loan customers borrow for emergencies.
Number of Pages in PDF File: 42
Keywords: payday lending, payday loans, natural disasters, triple differencing
JEL Classification: G23, D12, E21, R20
Date posted: February 19, 2009 ; Last revised: February 25, 2009
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