Using Advertisements to Diagnose Behavioral Market Failure in Payday Lending Markets

46 Pages Posted: 2 Aug 2015 Last revised: 15 Apr 2016

See all articles by Jim Hawkins

Jim Hawkins

University of Houston Law Center

Date Written: August 7, 2015


Payday and auto title loans have caused heated debate among policymakers, academics, and consumer and industry groups across the country. The majority of consumers using these short-term, small-dollar, high-cost loans are lower-income Americans. One side of the debate argues consumers’ use of short-term loans is rational because borrowers need access to credit and lack superior alternatives. The other side argues that lenders are exploiting consumers’ systematically poor decision making.

This Article employs a novel research method to assess which side is right. By focusing attention on the advertisements that payday and title lenders use, it offers new perspectives on whether consumers who take out these loans are acting rationally or myopically. To do so, I offer the first comprehensive empirical study of advertisements for payday and title loans. I report on research I conducted that coded information on advertisements at 189 payday and title lending storefronts and 27 websites. Using the advertisements to diagnose behavioral market failure, I find evidence that firms use advertising to exploit the ways in which payday and title lending customers deviate from the rational actor model.

A rich description and analysis of the content of payday and title lending advertising enable us to assess new proposed regulations for payday and title lending introduced by the Consumer Financial Protection Bureau (“CFPB”) in March 2015. In addition to critiquing the proposed regulations, I offer a policy suggestion aimed at facilitating meaningful price competition in payday and title lending markets in hope of fixing an important behavioral market failure.

Suggested Citation

Hawkins, Jim, Using Advertisements to Diagnose Behavioral Market Failure in Payday Lending Markets (August 7, 2015). 51 Wake Forest Law Review 57 (2016), Available at SSRN: or

Jim Hawkins (Contact Author)

University of Houston Law Center ( email )

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4604 Calhoun Road
Houston, TX 77204-6060
United States

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