How payday credit access affects overdrafts and other outcomes

Abstract

Despite a dozen studies, the welfare effects of payday credit are still debatable. We contribute new evidence to the debate by studying how payday credit access affects bank overdrafts (such as returned checks), bankruptcy, and household complaints against lenders and debt collectors.We find some evidence that Chapter 13 bankruptcy rates decrease after payday credit bans, but where we find that, we also find that complaints against lenders and debt collectors increase. The welfare implications of these offsetting movements are unclear. Our most robust finding is that returned check numbers and overdraft fee income at banks increase after payday credit bans. Bouncing a check may cost more than a payday loan, so this finding suggests that payday credit access helps households avoid costlier alternatives. While our findings obviously do not settle the welfare debate over payday lending, we hope they resolve it to some extent it by illuminating how households rearrange their financial affairs when payday loan supply changes.

Click here to get the full text of this paper as an Adobe Acrobat PDF.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Michael R.
Strain

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Event Registration is Closed
Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.