Paige Marta Skiba

Do Payday Loans Cause Bankruptcy

An estimated ten million American households borrow on payday loans each year. Despite the prevalence of these loans, little is known about the effects of access to this form of short-term, high-cost credit. We match individual-level administrative records on payday borrowing to public records on personal bankruptcy, and we exploit a regression discontinuity to estimate the causal impact of access to payday loans on bankruptcy filings. Though the size of the typical payday loan is only

Payday Loan Choices and Consequences

300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points. There appear to be two components driving this large effect. First, consumers are already financially stressed when they begin borrowing on payday loans. Second, approved applicants borrow repeatedly on payday loans and pawn loans, which carry very high interest rates. For the subsample that identifies our estimates, the cumulative interest burden from payday and pawn loans amounts to roughly 11% of the total liquid debt interest burden at the time of bankruptcy filing.

The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

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.

The Pawn Industry and Its Customers: The United States and Europe

This paper examines whether giving large cash transfers to financially distressed people causes them to avoid bankruptcy. A comparison of Florida Lottery winners who randomly received

Tax Rebates and the Cycle of Payday Borrowing

50,000 to

Balancing act: new evidence and a discussion of the theory on the rationality and behavioral anomalies of choice in credit markets

150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it, a result inconsistent with the negative shock model of bankruptcy. Furthermore, the large winners who subsequently filed for bankruptcy had similar net assets and unsecured debt as small winners. Thus, our findings suggest that skepticism regarding the long-term impact of cash transfers may be warranted.

Information Asymmetries in Consumer Credit Markets: Evidence from Two Payday Lending Firms

As humankind’s oldest financial institution, pawnbroking has served the financial needs of low-income families for centuries. Recently, and especially in the last five years, an increasing number of consumers have relied on pawnbrokers to help them meet daily financial needs. Seven percent of all U.S. and four percent of all Swedish households have used pawn credit at one time or another. Despite the general public’s increased interest in the pawn industry, evidenced by the popularity of reality television shows like “Pawn Stars” and “Hard Core Pawn,” economists have paid surprisingly little attention to the pawnbroking industry and pawnshop borrowers. We start by reviewing the history of pawn credit and the sparse economic literature on pawnbroking, and then present unique U.S. transaction data and Swedish register data to, first, show aggregate trends, and, second, shed light on the social and financial background of pawnshop borrowers and their behavior within the pawnbroking industry in both countries. We find that the pawnbroking industry and pawnshop borrowers are unexpectedly similar in the United States and Sweden.

Information Asymmetries in Consumer Credit Markets: Evidence from Payday Loans

I examine whether receipt of a

Payday Loans, Uncertainty and Discounting: Explaining Patterns of Borrowing, Repayment, and Default

300 tax rebate by payday borrowers affects their likelihood of borrowing, loan size, or default behavior. Results from fixed-effects models show that the rebate decreases the probability of taking out a payday loan in the short run. These impacts are most apparent among credit-constrained, infrequent borrowers. Those who take out loans around the time of the rebate borrow amounts typical of their normal borrowing behavior but are more likely to default. Overall, however, the rebates effects are small and short-lived, suggesting a muted response to this cash windfall in payday borrowing and repayment.

Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?

An emerging literature explores how people choose between and use forms of consumer credit. In their chapter, Bos, Carter, and Skiba reflect on the existing literature that analyzes the choice between traditional forms of credit and non-traditional forms of credit such as pawnshop loans and payday loans. The authors add to this literature by introducing new data on observed choices of customers switching to pawnshop loans when payday loans are not available. They bring together these facts to discuss the behavioral economics of choice across these credit markets. They outline the relevant behavioral economics theory, which they hope will inform regulators’ choices in governing alterative credit markets.