Abstract: “The debt trap hypothesis implicates payday loans as a factor exacerbating consumers‘ financial distress

Abstract: “The debt trap hypothesis implicates payday loans as a factor exacerbating consumers‘ financial distress

Accordingly, restricting access to payday loans would be expected to reduce delinquencies on mainstream credit products

We test this implication of the hypothesis by analyzing delinquencies on revolving, retail, and installment credit in Georgia, North Carolina, and Oregon. These states reduced availability of payday loans by either banning them outright or capping the fees charged by payday lenders at a low level. We find small, mostly positive, but often insignificant changes in delinquencies after the payday loan bans. In Georgia, however, we find mixed evidence: an increase in revolving credit delinquencies but a decrease in installment credit delinquencies. These findings suggest that payday loans may cause little harm while providing benefits, albeit small ones, to some consumers. With more states and the federal Consumer Financial Protection Bureau considering payday regulations that may limit availability of a product that appears to benefit some consumers, further study and caution are warranted.”

Abstract: “Payday lenders as a source of small dollar, short-term loans has expanded exponentially over the past two decades. Starting out as simple storefront outlets in approximately 200 locations in the early 1990s, the industry grew more than twelve-fold by the end of 2014. While the growth of this payday loan industry is obvious, there is no general consensus on whether the product offered is beneficial to those who borrow through this medium and the industry’s long-term effect upon society. The majority of policies, legislation, and restrictions within the payday loan industry is administered at the state level. Of the 33 states that allow payday loan operations, most restrict them in some manner through maximum interest rates, loan amounts, and payback periods. Beyond state-based legislations, some Federal oversight does exist in governing the payday loan industry. Most of the federal oversight was created through past Congressional action such as the Truth in Lending Act and through governmental agencies such as the Federal Trade Commission. However, federal reach is growing through newly created groups such as the Consumer Financial Protection Bureau. Payday lending continues to evolve beyond traditional geographical boundaries and into areas such as internet-based lenders. This creates an environment in which confusion reigns as to legal jurisdiction. Because of the uncertainty of existing laws and how they apply to the payday lending, evolving legislation will continue into the foreseeable future.”

“Banks and Payday Lenders: Friends or Foes?” Barth, James R.; Hilliard, Jitka; Jahera, John S. International Advances in Economic Research, 2015. doi: /s11294-015-9518-z.

Presently, 13 proceed this site states prohibit payday lenders to operate within their respective state boundaries through various legislation and statutes

Abstract: “This paper investigates the geographic distribution of payday lenders and banks that operate throughout the United States. State-level data are used to indicate differences in the regulatory environment across the states. Given the different constraints on interest rates and other aspects of the payday loan products, we empirically examine the relationship between the number of payday lender stores and various demographic and economic characteristics. Our results indicate that number of stores is positively related to the percentage of African-American population, the percentage of population that is aged 15 and under and the poverty rate. The number of stores is also negatively related to income per capita and educational levels.”

“Payday Loan Choices and Consequences.” Bhutta, Neil; Skiba, Paige Marta; Tobacman, Jeremy. Journal of Money, Credit and Banking, 2015. doi: /jmcb.12175.

Abstract: “High-cost consumer credit has proliferated in the past two decades, raising regulatory scrutiny. We match administrative data from a payday lender with nationally representative credit bureau files to examine the choices of payday loan applicants and assess whether payday loans help or harm borrowers. We find consumers apply for payday loans when they have limited access to mainstream credit. In addition, the weakness of payday applicants‘ credit histories is severe and longstanding. Based on regression discontinuity estimates, we show that the effects of payday borrowing on credit scores and other measures of financial well-being are close to zero. We test the robustness of these null effects to many factors, including features of the local market structure.”

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