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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 the last few years; therefore too have efforts to control them. Yet just how borrowers react to regulations that are such mostly unknown. Drawing on both administrative and study information, we exploit variation in payday-lending regulations to review the consequence of cash advance limitations on customer borrowing. We realize 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 place of old-fashioned credit instruments (as an example, charge cards). Such moving exists, but less pronounced, when it comes to lowest-income pay day loan users. Our outcomes declare that policies that target payday financing in isolation may be ineffective at reducing customers’ reliance on high-interest credit.