High-interest payday loans have actually proliferated in the past few years; therefore too have efforts to control them.

High-interest payday loans have actually proliferated in the past few years; therefore too have efforts to control them.

Stanford Law School

Abstract

Yet how borrowers react to regulations that are such mostly unknown. Drawing on both administrative and study information, we exploit variation in payday-lending legislation to analyze the result of cash advance limitations on consumer borrowing. We discover that although such policies work well at reducing payday financing, customers react by moving with other types of high-interest credit (as an example, pawnshop loans) in place of old-fashioned credit instruments (as an example, charge cards). Such moving exists, but less pronounced, when it comes to lowest-income cash advance users. Our results claim that policies that target payday lending in isolation might be ineffective at reducing customers’ reliance on high-interest credit. (suite…)

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