do payday loans cause bankruptcy abstractpayday loans are used by millions of americans every year despite their annualized interest rates of several hundred percent we provide new evidence on the consequences of payday borrowing and the determinants of personal bankruptcy using an administrative panel data set of loan records in a regression discontinuity design we estimate that payday loans increase personal bankruptcy rates by a factor of two we assess possible mechanisms and find the most support for a novel one payday loan access appears to induce bankruptcy filings by worsening the cash flow position of the household

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

the effects of usury laws evidence from the online loan market abstract usury laws cap the interest rates that lenders can charge using data from prosper com an online lending marketplace i investigate the effects of these laws the key to my empirical strategy is that there was initially substantial variability in states interest rate caps ranging from 6 to 36 a behind the scenes change in loan origination however suddenly increased the cap to 36 the main findings of the study are that higher interest rate caps increase the probability that a loan will be funded especially if the borrower was previously just outside the money i do not find however changes in loan amounts and default probability the interest rate paid rises slightly probably because online lending is substantially yet imperfectly integrated with the general credit market

the real costs of credit access evidence from the payday lending market using geographic differences in the availability of payday loans i estimate the real effects of credit access among low income households payday loans are small high interest rate loans that constitute the marginal source of credit for many high risk borrowers i find no evidence that payday loans alleviate economic hardship to the contrary loan access leads to increased difficulty paying mortgage rent and utilities bills the empirical design isolates variation in loan access that is uninfluenced by lenders location decisions and state regulatory decisions two factors that might otherwise correlate with economic hardship measures further analysis of differences in loan availability over time and across income groups rules out a number of alternative explanations for the estimated effects counter to the view that improving credit access facilitates important expenditures the results suggest that for some low income households the debt service burden imposed by borrowing inhibits their ability to pay important bills copyright 2011 oxford university press

do consumers need more protection from small dollar lenders historical evidence and a roadmap for future research we summarize the current debate surrounding four small dollar credit products pawn loans vehicle title loans payday loans and cash installment loans from finance companies we review the contributions of scholars that inform this debate we underscore that users of these products fit the description of those whom consumer credit models predict benefit from these products many studies find that on average consumer use of small dollar credit products is at worst innocuous there are however findings of heterogeneity in borrowers experiences the disagreements surrounding these credit products and the difficulty in crafting the proper policy response stems from this heterogeneity jel d18 g23

expanding credit access using randomized supply decisions to estimate the impacts expanding access to commercial credit is a key ingredient of financial development strategies there is less consensus on whether expanding access to consumer credit helps borrowers particularly when loans are extended at high interest rates popular skepticism about unproductive usurious lending is fueled by research highlighting behavioral biases that may induce overborrowing we estimate the impacts of expanding access to consumer credit at a 200 annual percentage rate apr using a field experiment and follow up data collection the randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes there is also some evidence that the loans were profitable the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

the welfare cost of inflation in canada and the united states abstract this paper follows lucas econometrica 68 2000 247 and estimates the welfare cost of inflation in the post world war ii canadian and u s economies we use recent advances in the field of applied econometrics to estimate the interest elasticity of money demand and report significantly smaller welfare costs estimates than lucas econometrica 68 2000 247

dual career expatriates expectations adjustment and satisfaction with international relocation dual career expatriate couples present a challenging set of problems for international human resource managers the results of a survey of husbands and wives in expatriate dual career couples are analyzed relative to 1 differences between the expatriates and their trailing spouses 2 differences between male and female led dual career couples 3 differences between dual career couples opinions prior to expatriation and upon repatriation the results of the study indicate dual career couples have relatively consistent concerns and expectations prior to expatriation and upon repatriation to their home country the significant differences observed were between male led dual career couples prior to expatriation when compared to male led dual career couples upon repatriation in addition the dual career expatriate respondents did not feel the mnc that transferred them overseas provided adequate training or social support during the international assignment

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

on the instability of long run money demand and the welfare cost of inflation in the united states we evaluate the policy implications of measuring the welfare cost of inflation accounting for instabilities in the long run money demand for the u s over the period 1900 2013 we extend the analysis and reassess the results reported in lucas 2000 and ireland 2009 also considering the recent theoretical contributions of lucas and nicolini 2015 and berentsen et al 2015 breaks in the long run money demand give rise to regime dependent welfare cost estimates we find that the welfare cost is about 0 1 of annual income over 1976 2013 as compared to 0 8 over 1945 1975 overall these values are substantially lower than those reported in the literature

resource partitioning and the organizational dynamics of fringe banking we examine the emergence and proliferation of payday lenders fringe businesses that provide small short term but high cost loans we link the organizational dynamics of these businesses to two trends in consumer lending in the united states the continuing consolidation of mainstream financial institutions and the expansion of such institutions in the provision of financial services regarded as similar to payday loans we explain the coexistence in mature industries of large scale organizations in the market center and smaller specialists in the periphery by testing and extending the organizational model of resource partitioning our focus is on two under examined aspects of the model the dynamic underlying the partitioning process and the conditions under which the market remains partitioned the empirical analysis covers payday lenders banks and credit unions operating in wisconsin between 1994 and 2008

payday loan choices and consequences 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

what do high interest borrowers do with their tax rebate building on prior literature that constrained individuals consume the most out of a tax rebate we study the tradeoffs high interest borrowers face when they received their 2008 tax stimulus checks we find a persistent decline in payday borrowing in the pay cycles that follow the receipt of the tax rebate the reduction in borrowing is a significant fraction of the mean outstanding loan 12 and appears fairly persistent over the time but is moderate in dollar magnitude about 35 relative to the size of the rebate check 600 per person in trying to reconcile this finding with the cost of not retiring expensive payday debt we find substantial heterogeneity across borrowers among individuals that we classify as temptation spenders e g those that use 400 apr loans to buy electronic goods or go on vacation we find no reduction in payday borrowing after the tax rebate is issued but this group represents only a small fraction of payday borrowers a second group for which we find no debt retirement post check is the set of borrowers that appear to use what should be short term payday loans as a long term financing solution we infer that the marginal use of the tax rebate for this group was to deal with regular monthly obligations such as paying down late utility bills or making rent payments

credit constraints and demand for higher education evidence from financial deregulation abstract we use staggered banking deregulation across states in the united states to examine the impact of the resulting increased credit supply on college enrollment from the 1970s to the early 1990s our research design produces estimates that are not confounded by wealth effects due to changes in income or housing wealth we find that lifting banking restrictions raises college enrollment by about 2 6 percentage points 4 9 we rule out alternative interpretations by examining results for different income groups and bankrupt households we also find similar effects for two year or four year college completion and supporting evidence in household educational borrowing

uncertainty inflation and welfare this paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk in a microfounded search theoretical monetary model we calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households and study the effects of inflation under the implied degree of market incompleteness we show that in the presence of imperfect insurance the estimated long run welfare costs of inflation are on average 40 to 55 smaller compared to a complete markets representative agent economy and that inflation induces important redistributive effects across households

the timing of pay abstract there exists large and persistent variation in not only how but when employees are paid a fact unexplained by existing theory this paper develops a simple model of optimal pay timing for firms when workers have self control problems they under save and experience volatile consumption between paychecks thus pay whose delivery matches the timing of workers consumption needs will reduce wage costs the model also explains why pay timing should be regulated as it is in practice although the worker benefits from a timing profile that smoothes her consumption her lack of self control induces her to attempt to undo the arrangement either by renegotiating with her employer or by taking out payday loans regulation of pay timing and consumer borrowing is required to counter these efforts helping the worker help herself

presidential address does finance benefit society academics view of the benefits of finance vastly exceeds societal perception this dissonance is at least partly explained by an underappreciation by academia of how without proper rules finance can easily degenerate into a rent seeking activity i outline what finance academics can do from a research point of view and from an educational point of view to promote good finance and minimize the bad

consumer default credit reporting and borrowing constraints why do negative credit events lead to long term borrowing constraints exploiting banking regulations in peru and utilizing currency movements we show that consumers who face a credit rating downgrade due to bad luck experience a three year reduction in financing consumers respond to the shock by paying down their most troubled loans but nonetheless end up more likely to exit the credit market for a set of borrowers who experience severe delinquency we find that the associated credit reporting downgrade itself accounts for 25 to 65 of their observed decline in borrowing at various horizons over the following several years

impacts of interest rate caps on the payday loan market evidence from rhode island abstract interest rate caps are the most common form of payday loan regulation yet little academic research has examined their consequences i investigate the impacts of tightening the cap from 15 to 10 in rhode island using a difference in difference framework and a unique proprietary dataset of payday loans issued by major nationwide lenders between 2009 and 2013 lenders always charge the prevailing cap creating a sharp and clean variation in interest rate i show that loan usage increases at the extensive and intensive margins amounting to elasticity estimates in the range of 0 7 1 0 i also find that loan sequences become longer and more likely to end with default no lenders exit the market implying that market power existed furthermore i find no evidence of credit rationing as a result of the lower cap these changes imply an upper bound of 3 3 million per year for neoclassical consumer surplus however i show that behavioral consumers can be worse off by the policy if more than half of the increase in demand is due to overborrowing

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

on the markov switching welfare cost of inflation abstract this paper uses the markov switching approach to account for instabilities in the long run money demand function and compute the welfare cost of inflation in the united states in doing so it circumvents the problem of data mining of some earlier seminal contributions on these issues allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function moreover it extends the sample period and investigates the robustness of results to alternative money demand specifications monetary aggregation procedures and assumptions regarding dynamics aspects of the money demand specification

when and why usury should be prohibited usury ceilings seem indefensible their opponents insist these caps harm the consumers they are intended to help low ceilings are said to prevent the least advantaged agents from accessing legal credit and drive them into the black market where prices are higher and collection methods are harsher but in this paper i challenge these arguments and show that the benefits of interest rate limitations in the most expensive credit markets clearly outweigh the costs the test case is payday lending deregulated pricing in this market produces negative externalities that justify usury restrictions unless prices are capped the more solvent majority of borrowers is compelled to cross subsidize the least solvent debtors who have a high rate of default rationing the riskiest debtors out of this market by means of a moderate usury cap puts an end to this unfairness and produces fewer bad consequences than the advocates of deregulated pricing recognize i argue that only an extreme principle like maximizing the minimum could justify a free market in payday credit

restoring rational choice the challenge of consumer financial regulation abstract this lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively the lecture argu

an examination of firm licensing behaviour after a payday loan ban in 2008 ohio enacted the short term loan law capping interest rates to 28 apr effectively banning the industry previous analysis has shown that while the policy was effective in eliminating the

what happens when we forget the effect of removing adverse information on access to credit in a world with asymmetric information past information helps borrowers establish reputation and credibility however can less information be beneficial using a panel of nationally representative sample of borrowers credit bureau information we investigate the impact of the removal of adverse credit information for long time delinquent borrowers in thailand on their access to credit the removal is a deliberated effort by policymakers to allow borrowers to reenter formal credit markets contrary to theoretical prediction we find no evidence of a subsequent expansion in credit

the political economy of financial regulation evidence from u s state usury laws in the 19th century financial regulation was as hotly debated a political issue in the 19th century as it is today we study the political economy of state usury laws in 19th century america exploiting the wide variation in regulation enforcement and economic conditions across states and time we find that usury laws when binding reduce credit and economic activity especially for smaller firms we examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents particularly when they have more voting power the evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved we examine the motives and consequences of financial regulation to better understand the implications of regulation for financial development and economic growth while the current global financial crisis has reinvigorated the debate on financial regulation s effects and motives there is a long history of financial regulation and development we can examine to shed light on these issues specifically we study the political economy of financial regulation and its consequences through the lens of usury laws in 19th century america usury laws are arguably the oldest form of financial regulation mentioned in both the bible and the koran and dating back to ancient rome having long been