Nathalie Martin of the
University of New Mexico has written two more payday lending articles. The first is Regulating Payday Loans: Why this Should Make the CFPB’s Short List, 2 Harvard Business Law Review Online 44 (2011). Here's the abstract::
This article briefly describes the history of the Consumer Financial Protection Bureau (CFPB), describes payday and title loan products and their customers, describes the CFPB’s general powers, then discusses how and why the CFPB might use its particular powers to bring this industry into compliance with lending norms used throughout the rest of the civilized world.
The second, co-authored with
Koo Im Tong
is Double Down-And-Out: The Connection between Payday Loans and Bankruptcy, 39 Southwestern Law Review 785. Here's that abstract:
This Article reviews the literature on the debate regarding the causal relationship between filing for bankruptcy and the use of payday loans but does not weigh in on the subject. Rather, it uses these studies, as well as a general discussion of bankruptcy filing and payday loans, as a backdrop for analyzing new data regarding the correlation between bankruptcy filing and the use of payday loans. This Article reports on an empirical study conducted in the state of New Mexico that measures rates of payday loan use among bankruptcy debtors from a large sample of publicly available bankruptcy data.
Part I of this Article discusses the payday loan industry, its business model, how the loans work, and who the likely payday lending customer is. Part II reviews the current literature regarding the connection between payday loans and bankruptcy, and suggests some ways in which the existing literature falls short of fully answering the question of whether payday lending causes bankruptcy filing. Part III describes the new empirical study from New Mexico. This Article describes the method used to conduct this study as well as its results. In summary, our data show that from 2007 to 2009, 18.9 percent of bankruptcy debtors in New Mexico reported using payday loans. Compared to the use of payday loans reported in other studies among the general population, as well as past studies on payday loan use among bankruptcy debtors, this rate of usage is extremely high. Moreover, the correlation between bankruptcy and payday loans seems to be getting stronger, as the use of these loan products appears to be growing. We find that almost double the percentage of bankruptcy debtors reported using payday loans from 2007 to 2009, than from 2000 to 2002.
Part IV of this Article concludes that while one cannot be certain that there is a causal connection between filing for bankruptcy and using payday or other short-term loans, there is a strong correlation between bankruptcy filing and payday loan use. If the increasing use of payday loans is seen as a problem, we conclude that the problem appears to be growing, despite efforts by states to cut down on the use of these loans and to curb the use of multiple loans at one time. In fact, the usage of multiple payday loans at one time also has increased drastically, as recent bankruptcy debtors, whether individuals or families, report using far more of these types of loans simultaneously than in the past. All of this indicates that the use of multiple loans at one time is increasing, a problem states are grappling with but apparently are not solving.
And
Neil Bhutta
of the Fed offers another view in The Effect of Access to Payday Loans on Consumers' Financial Health: Evidence from Consumer Credit Record Data. Here's his abstract:
I test whether access to payday loans affects broad measures of consumers’ financial well-being by taking advantage of geographic variation in access to payday loans due to state lending laws. I draw on several sources of data including a large, nationally representative panel dataset of individual consumer credit records, as well as census data on the location of payday lending establishments at the ZIP code level. I find little evidence that access to payday loans affects consumers’ financial health. In particular, access does not affect credit scores levels, nor does it appear to either exacerbate or mitigate the probability of a major score decline over a two year period during the recent recession, nor does it appear to affect the dynamics of recovery from a low score. The estimated coefficients are generally very close to zero and precise, and robust to a within-state test similar to that of Melzer (2011). There is some evidence that access reduces the incidence of accounts going into collections – one component of credit scores – but the fact that that access nevertheless does not affect credit scores suggests that payday loans may have some small but hard-to-detect benefits.