The Real Effects of Financial Technology: Marketplace Lending and Personal Bankruptcy
60 Pages Posted: 26 Jul 2018 Last revised: 8 Jan 2019
Date Written: July 5, 2018
We examine how financial technology affects household hardship in terms of personal bankruptcy. We exploit an exogenous source of variation in marketplace lending, a court verdict rendering above-usury loans issued by banks to Connecticut and New York residents null and void if the loans are sold outright to non-banks. We document a persistent rise in personal bankruptcies following the verdict and a decline in marketplace lending, particularly among low-income households. Marketplace loan defaults and other consumer credit by banks and finance companies remain unaffected, suggesting that increases in personal bankruptcy arise principally from reversing access to new lending technology.
Keywords: credit supply, marketplace lending, alternative finance, financial technology, bankruptcy
JEL Classification: D14, G21, G23
Suggested Citation: Suggested Citation