Scale Economies at Payday Loan Stores

Flannery, Mark, and Katherine Samolyk. 2007. "Scale Economies at Payday Loan Stores," Proceedings of the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition (May 2007) Chicago, Illinois, pp 233-259

24 Pages Posted: 28 Nov 2013

See all articles by Mark J. Flannery

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Katherine A Samolyk

FDIC, Division of Insurance and Research

Date Written: June 1, 2007

Abstract

Payday lenders advance small, short-term consumer loans through convenient storefront shops with limited underwriting. However, their fees convert to very high annualized rates of interest (APR’s > 390%). Using proprietary, store-level data, we find that a store’s age importantly affects its profitability. Younger stores have fewer customers, make fewer loans, and experience higher losses per loan than more mature stores. Regardless of age, stores making a larger number of loans per customer enjoy lower default losses and lower operating costs per loan. Although these conclusions cannot necessarily be generalized to the entire payday industry, they do seem to apply to the sort of large, monoline lenders that control more than a fourth of the industry’s storefronts.

Keywords: payday lending, price ceilings, small dollar loans

JEL Classification: G21, D14, D4

Suggested Citation

Flannery, Mark Jeffrey and Samolyk, Katherine A, Scale Economies at Payday Loan Stores (June 1, 2007). Flannery, Mark, and Katherine Samolyk. 2007. "Scale Economies at Payday Loan Stores," Proceedings of the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition (May 2007) Chicago, Illinois, pp 233-259 . Available at SSRN: https://ssrn.com/abstract=2360233 or http://dx.doi.org/10.2139/ssrn.2360233

Mark Jeffrey Flannery (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Katherine A Samolyk

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

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