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Regulation of Payday Loans

dc.contributor.authorSkiba, Paige Marta
dc.identifier.citation69 Washington & Lee Law Review 1023 (2012en_US
dc.descriptionarticle published in a law reviewen_US
dc.description.abstractSince payday lenders came on the scene in 1990s, regulation of their ')redatory" practices has been swift and often severe. Fourteen states now ban payday loans outright. From an economist's perspective, high-interest, short-term, small loans need not be a bad thing. Payday credit can help borrowers "smooth" consumption, unequivocally improving welfare as consumers borrow from future good times to help cover current shortfalls. These benefits of credit can accrue even at typical payday loan interest rates of 300%-600% APR. The question of whether payday credit actually assists borrowers in this way is an empirical one. In this Article, I review the existing evidence on how borrowers use payday loans. I document the prevalence of rollovers and default, the effect of varying principal amounts and loan durations, the existence of self-control problems and myopia among borrowers, and the demand for payday loans over other types of cheaper credit. I then document the disconnect between this collection of evidence and the existing regulatory frameworks which purport to help consumers avoid misuse of payday loans. These regulations on payday lending include outright bans, price caps, minimum and maximum loan lengths, minimum and maximum loan sizes, and rollover restrictions. I argue that: (1) outright bans are misguided, (2) larger loans can actually help borrowers, (3) loan-length restrictions are ineffective, and (4) rollover restrictions do make sense.en_US
dc.format.extent1 PDF (29 pages)en_US
dc.publisherWashington & Lee Law Reviewen_US
dc.subjectpayday loansen_US
dc.subjectpredatory practiceen_US
dc.subjectregulatory frameworken_US
dc.subject.lcshbanking lawen_US
dc.subject.lcshconsumer protectionen_US
dc.titleRegulation of Payday Loansen_US

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