Do Payday Loans Cause Bankruptcy?

52 Pages Posted: 12 Sep 2008 Last revised: 1 Dec 2011

See all articles by Paige Marta Skiba

Paige Marta Skiba

Vanderbilt University - Law School

Jeremy Tobacman

Alfred Lerner College of Business and Economics, University of Delaware

Date Written: November 9, 2009


An estimated ten million American households borrow on payday loans each year. Despite the prevalence of these loans, little is known about the effects of access to this form of short-term, high-cost credit. We match individual-level administrative records on payday borrowing to public records on personal bankruptcy, and we exploit a regression discontinuity to estimate the causal impact of access to payday loans on bankruptcy filings. Though the size of the typical payday loan is only $300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points. There appear to be two components driving this large effect. First, consumers are already financially stressed when they begin borrowing on payday loans. Second, approved applicants borrow repeatedly on payday loans and pawn loans, which carry very high interest rates. For the subsample that identifies our estimates, the cumulative interest burden from payday and pawn loans amounts to roughly 11% of the total liquid debt interest burden at the time of bankruptcy filing.

Keywords: payday loans, bankruptcy, regression discontinuity

JEL Classification: D14, K35, D12

Suggested Citation

Skiba, Paige Marta and Tobacman, Jeremy, Do Payday Loans Cause Bankruptcy? (November 9, 2009). Vanderbilt Law and Economics Research Paper No. 11-13, Available at SSRN: or

Paige Marta Skiba (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-322-1958 (Phone)

Jeremy Tobacman

Alfred Lerner College of Business and Economics, University of Delaware ( email )

Newark, DE 19716
United States

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