Payday Loans and Consumer Financial Health

Posted: 13 Oct 2011 Last revised: 4 Sep 2014

See all articles by Neil Bhutta

Neil Bhutta

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2014


The annualized interest rate for a payday loan often exceeds 10 times that of a typical credit card, yet this market grew immensely in the 1990s and 2000s, elevating concerns about the risk payday loans pose to consumers and whether payday lenders target minority neighborhoods. This paper employs individual credit record data, and Census data on payday lender store locations, to assess these concerns. Taking advantage of several state law changes since 2006 and, following previous work, within-state-year differences in access arising from proximity to states that allow payday loans, I find little to no effect of payday loans on credit scores, new delinquencies, or the likelihood of overdrawing credit lines. The analysis also indicates that neighborhood racial composition has little influence on payday lender store locations conditional on income, wealth and demographic characteristics.

Keywords: Payday loan, credit scores, credit records, fair lending, usury

JEL Classification: D14, G2

Suggested Citation

Bhutta, Neil, Payday Loans and Consumer Financial Health (April 27, 2014). Journal of Banking and Finance, Vol. 47, No. 1, 2014, Available at SSRN: or

Neil Bhutta (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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