The Effect of Payday Loan Restrictions on Suicides and Drug Overdoses

Abstract

In this paper, I study the role of payday loan restrictions on suicide and overdose deaths. Payday lenders offer ``quick cash'' and charge high fees relative to the principle loan amounts. Concerns about payday loans trapping borrowers in debt have led 21 U.S. states and the District of Columbia to prohibit or severely restrict payday lending by the end of 2021. Having access to costly credit could lead poorly informed individuals to a cycle of repeated borrowing and result in negative heath consequences, such as suicides. Moreover, numerous studies have documented the link between disposable income and negative heath events related to substance use, such as hospitalization and mortality, even when the income is anticipated. Given this relationship, state laws that limit access to credit, such as payday loans, may have unintended consequences related to health outcomes. Using the National Center for Health Statistics Multiple Cause of Death Files from 1999-2018 and estimating event-study models using procedures by Sun & Abraham (2021), my estimates show that suicides and overdoses decline post payday lending restriction. I additionally show that payday loan usage and binge drinking decline as access to payday loans is restricted. My findings suggest that restricting access to payday loans can have unintended benefits in reducing suicides and deaths linked to substance misuse.

Note:
Funding Information: This project is supported by the Summer 2019 Research Fellowship, Department of Economics, Temple University.

Declaration of Interests: No conflicts of interest to declare.

Keywords: Payday lending, Mortality, Suicide, Substance misuse

JEL Classification: I12, G23