The Effects on Consumers from Two State-Level Regulations of the Payday Loan Market

Abstract

We analyze 15.6 million storefront payday loans made to 1.8 million unique borrowers in 2013 to examine payday loan terms and usage. We find that loan prices and loan amounts are generally not at state-mandated maximum levels. For the 30 states in our sample, we find that the number of loans per person in states with maximum loan amount limits less than or equal to $500 is higher than in states with maximum loan amount limits greater than $500, but the average total amount borrowed during the year is similar. There is a simple explanation for this statistical relationship between loan-amount limits and number of loans per person. If consumers cannot borrow the amount needed at the time of their loan, they will respond by increasing their loan volume to obtain the needed funds which could result higher overall costs.

Keywords: Personal Finance, Consumer Protection, Non-bank Financial Services, Payday Loans, State Regulation

JEL Classification: D14, D18, G23, K2