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Do Payday Loans Cause Bankruptcy?

dc.contributor.authorSkiba, Paige Marta
dc.contributor.authorTobacman, Jeremy
dc.identifier.citation62 Journal of Law & Economics 485 (2019)en_US
dc.descriptionarticle published in a journal of law and economicsen_US
dc.description.abstractAn 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 $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.en_US
dc.format.extent1 PDF (35 pages)en_US
dc.publisherJournal of Law and Economicsen_US
dc.subjectpayday loansen_US
dc.subjectregression discontinuityen_US
dc.subject.lcshBankruptcy Lawen_US
dc.titleDo Payday Loans Cause Bankruptcy?en_US

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