Payday holiday: how households fare after payday credit bans

Donald Morgan and Michael Strain

No 309, Staff Reports from Federal Reserve Bank of New York

Abstract: Payday loans are widely condemned as a ?predatory debt trap.? We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005. Compared with households in all other states, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation?reduced payday credit supply, increased credit problems?contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check ?protection? sold by credit unions and banks or loans from pawnshops.>

Keywords: Finance, Personal; Public welfare; Loans, Personal; Households - Economic aspects; Banking law; Debt (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ban and nep-ure
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