Abstract

http://ssrn.com/abstract=1585805
 


 



Does Payday Lending Catch Vulnerable Communities in a Debt Trap?


Richard M. Hynes


University of Virginia School of Law

April 5, 2010

Virginia Law and Economics Research Paper No. 2010-08

Abstract:     
Consumers can use loans to smooth consumption after suffering financial shocks. However, payday loans may catch some consumers in a debt trap that leads to financial collapse. Critics claim that payday lenders target minority and military communities, making these groups especially vulnerable to this trap. This article uses county-level data to test these claims. The results, like those of the existing literature, are mixed. Bankruptcy filings fall in counties with large military or minority communities after a state legalizes payday lending. Because this correlation might be due to states’ incentives in enacting payday lending laws, this article also tests the effect of a change in federal law that should have had a disparate impact according to the prior choice of state law. This second test provides results that less clearly contradict the debt-trap hypothesis.

Number of Pages in PDF File: 32

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Date posted: April 8, 2010 ; Last revised: July 5, 2013

Suggested Citation

Hynes, Richard M., Does Payday Lending Catch Vulnerable Communities in a Debt Trap? (April 5, 2010). Virginia Law and Economics Research Paper No. 2010-08. Available at SSRN: http://ssrn.com/abstract=1585805

Contact Information

Richard M. Hynes (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

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