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Payday Loan Choices and Consequences

54 Pages Posted: 13 Oct 2012 Last revised: 9 May 2014

Neil Bhutta

Board of Governors of the Federal Reserve System

Paige Marta Skiba

Vanderbilt University - Law School

Jeremy Tobacman

Alfred Lerner College of Business and Economics, University of Delaware

Date Written: October 11, 2012

Abstract

High-cost consumer credit has proliferated in the past two decades, raising regulatory scrutiny. We match administrative data from a payday lender with nationally representative credit bureau files to examine the choices of payday loan applicants and assess whether payday loans help or harm borrowers. We find consumers apply for payday loans when they have limited access to mainstream credit. In addition, the weakness of payday applicants’ credit histories is severe and longstanding. Based on regression discontinuity estimates, we show that the long-run effect of payday borrowing on credit scores and other measures of financial well-being is close to zero.

Keywords: Payday loans, consumer finance, subprime lending, credit scores, debt

Suggested Citation

Bhutta, Neil and Skiba, Paige Marta and Tobacman, Jeremy, Payday Loan Choices and Consequences (October 11, 2012). Vanderbilt Law and Economics Research Paper No. 12-30. Available at SSRN: https://ssrn.com/abstract=2160947 or http://dx.doi.org/10.2139/ssrn.2160947

Neil Bhutta

Board of Governors of the Federal Reserve System ( email )

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

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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