Repeat use of short‐term credit: The case of deposit advance products

Alycia Chin and Charles J. Romeo

Journal of Consumer Affairs, 2022, vol. 56, issue 4, 1705-1726

Abstract: Every day, consumers borrow using short‐term credit products. Relatively little is known about “Deposit Advance Products” (DAP), short‐term, small‐dollar loans offered to checking account customers. We examine (1) how DAP borrowing changes with repeat use and (2) how consumers use DAP in conjunction with other credit. By analyzing transaction‐level data on more than 100,000 checking accounts over an 18‐month period, we find that consumers' DAP borrowing evolves. With repeat borrowing, consumers take credit for a longer time, increasingly withdraw new loans within a week of repaying prior ones, and borrow more. Additionally, consumers with repeat DAP use are more likely to simultaneously borrow using overdraft. Together, this evidence suggests that DAP may provide inadequate credit for consumers. We discuss implications for the short‐term credit market.

Date: 2022
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