Consumer Borrowing after Cash Advance Bans

Consumer Borrowing after Cash Advance Bans

Federal Reserve Board

Stanford Law Class

Abstract

High-interest payday loans have actually proliferated in modern times; therefore have efforts to too control them. Yet just how borrowers react to such laws continues to be mainly unknown. Drawing on both administrative and survey information, we exploit variation in payday-lending laws to examine the consequence of pay day loan limitations on customer borrowing. We discover that although such policies work well at reducing lending that is payday customers react by shifting to many other kinds of high-interest credit (as an example, pawnshop loans) in the place of conventional credit instruments (for instance, charge cards). Such moving exists, but less pronounced, when it comes to lowest-income cash advance users. Our outcomes claim that policies that target payday financing in isolation might be inadequate at reducing customers’ reliance on high-interest credit.

1. Introduction

The payday-lending industry has gotten attention that is widespread intense scrutiny in modern times. Payday loans—so called because that loan is normally due regarding the date for the borrower’s paycheck—are that is next very costly.

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