Jonathan Zinman on What Borrowers Do When States Limit Payday Loans

Jonathan Zinman of Dartmouth has written Restricting Consumer Credit Access: Household Survey Evidence on Effects Around the Oregon Rate Cap.  Here's the abstract: 

Many policymakers and some behavioral models hold that restricting access to expensive credit helps consumers by preventing overborrowing. I examine some short-run effects of restricting access, using household panel survey data on payday loan users collected around the imposition of binding restrictions on payday loan terms in Oregon. The results suggest that borrowing fell in Oregon relative to Washington, with former payday loan users shifting partially into plausibly inferior substitutes. Additional evidence suggests that restricting access caused deterioration in the overall financial condition of the Oregon households. The results suggest that restricting access to expensive credit harms consumers on average.

Comments

[Assaf Oron]

Zinman's study thoroughly debunked: http://arxiv.org/ftp/arxiv/papers/0908/0908.1602.pdf (pdf file)

Abstract:

1. A recent unpublished manuscript whose conclusions were widely circulated in the electronic media (Zinman, 2009) claimed that Oregon 2007 payday loan (PL) rate-limiting regulations (hereafter, "Cap") have hurt borrowers.

2. The report's main conclusion, phrased in cause-and-effect language in the abstract - "...restricting access caused deterioration in the overall financial condition of the Oregon households..." - relies on a single, small-sample survey funded by the payday-lending industry (PLI). The survey is fraught with methodological flaws.

3. Moreover, survey results do not support the claim that Oregon borrowers fared worse than Washington borrowers, on any variable that can be plausibly attributed to the Cap.

4. In fact, Oregon respondents fared better than Washington respondents on two key variables: on-time bill payment rate and avoiding phone-line disconnects. On all other relevant variables they fared similarly to Washington respondents. In short, the reported claim is baseless.

[Lis - AceCashExpress]

Here's another study related about payday loans and bankruptcy - http://acecashexpress.com/pdf/new/PressRelease_2009_1_22_175560.pdf

Here's an excerpt:

CLEMSON--Payday loans do not cause bankruptcy, according to a recent study by economists at Clemson University.

Dr. Petru S. Stoianovici and Prof. Michael T. Maloney studied the relationship between payday lending and bankruptcy filings over the period from 1990 to 2006. Using state-level data on the
legality of payday lending and on the number of loan stores, the investigators found that neither the legality of payday lending nor an increase in the number of loan stores led to higher rates of consumer bankruptcies.

[David Arkush]

Ed Mierzwinski did a nice post a few years back on the group that funded this study: http://static.uspirg.org/consumer/archives/2006/04/payday_lender_b.html