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Regulation Of Payday Loans: Misguided?, Paige Marta Skiba
Regulation Of Payday Loans: Misguided?, Paige Marta Skiba
Paige Marta Skiba
Since payday lenders came on the scene in 1990s, regulation of their "predatory" 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 …
Dude, Where's My Car Title?: The Law, Behavior, And Economics Of Title Lending Markets, Paige Marta Skiba, Kathryn Fritzdixon, Jim Hawkins
Dude, Where's My Car Title?: The Law, Behavior, And Economics Of Title Lending Markets, Paige Marta Skiba, Kathryn Fritzdixon, Jim Hawkins
Paige Marta Skiba
Millions of credit-constrained borrowers turn to title loans to meet their liquidity needs. Legislatures and regulators have debated how to best regulate these transactions, but surprisingly, we still know very little about the customers who use title loans. This Article reports findings from the first large-scale academic study of title lending customers. We surveyed over 400 title lending customers across three states and obtained information about customers’ demographic and behavioral characteristics.
Based on the results of our survey and guided by insights from behavioral economics, this Article seeks to reframe the title lending debate. Instead of focusing on the risks …
Information Asymmetries In Consumer Credit Markets: Evidence From Payday Lending, Paige Marta Skiba, Will Dobbie
Information Asymmetries In Consumer Credit Markets: Evidence From Payday Lending, Paige Marta Skiba, Will Dobbie
Paige Marta Skiba
Information asymmetries are prominent in theory but difficult to estimate. This paper exploits discontinuities in loan eligibility to test for moral hazard and adverse selection in the payday loan market. Regression discontinuity and regression kink approaches suggest that payday borrowers are less likely to default on larger loans. A $50 larger payday loan leads to a 17 to 33 percent drop in the probability of default. Conversely, there is economically and statistically significant adverse selection into larger payday loans when loan eligibility is held constant. Payday borrowers who choose a $50 larger loan are 16 to 47 percent more likely …
Pawnshops, Behavioral Economics, And Self Regulation, Paige Marta Skiba, Susan Payne Carter
Pawnshops, Behavioral Economics, And Self Regulation, Paige Marta Skiba, Susan Payne Carter
Paige Marta Skiba
Pawnbroking is the oldest source of credit. There is growing public interest in day-to-day pawnbroking operations, as evidenced by the popularity of reality shows such as “Pawn Stars” and “Hardcore Pawn.” Television viewers’ curiosity about an old credit institution may be due to the fact that 7% of all U.S. households have used pawn credit. Although pawnshops predate biblical times, researchers know surprisingly little about this ancient form of banking and its customers. We fill this gap by documenting detailed information on pawnshop loan repayment and default, and by discussing how pawnshop borrowers’ behavior is consistent with various behavioral economics …
Consumer Litigation Funding: Just Another Form Of Payday Lending?, Paige Marta Skiba, Jean Xiao
Consumer Litigation Funding: Just Another Form Of Payday Lending?, Paige Marta Skiba, Jean Xiao
Paige Marta Skiba
This article provides a side-by-side comparison of payday lending and consumer litigation funding in order to aid policymakers. Funding has similarities with payday lending because they are both alternative financial services, involve high interest rates, and cater to customers who need money for living expenses. However, they differ in ways that regulators should recognize. Many justify bans on payday lending by pointing to the fact that millions of borrowers every year are getting stuck in an inescapable cycle of interest payments. While legal finance has real costs, funding’s nonrecourse nature prevents consumers from getting stuck in a cyclical repayment of …