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Assessing the Optimism of Payday Loan Borrowers

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  • Ronald Mann

Abstract

This Article compares the results from a survey administered to payday loan borrowers at the time of their loans to subsequent borrowing and repayment behavior. It thus presents the first direct evidence of the accuracy of payday loan borrowers' understanding of how the product will be used. The data show, among other things, that about 60 percent of borrowers accurately predict how long it will take them finally to repay their payday loans. The evidence directly contradicts the oft-stated view that substantially all extended use of payday loans is the product of lender misrepresentation or borrower self-deception about how the product will be used. It thus has direct implications for the proper scope of effective regulation of the product, a topic of active concern for state and federal regulators.

Suggested Citation

  • Ronald Mann, 2013. "Assessing the Optimism of Payday Loan Borrowers," Supreme Court Economic Review, University of Chicago Press, vol. 21(1), pages 105-132.
    • Handle: RePEc:ucp:scerev:doi:10.1086/675267
    DOI: 10.1086/675267
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    Cited by:

    1. Wang, Jialan & Burke, Kathleen, 2022. "The effects of disclosure and enforcement on payday lending in Texas," Journal of Financial Economics, Elsevier, vol. 145(2), pages 489-507.
    2. Thomas A. Hemphill, 0. "The small-dollar loan industry: a new era of regulatory reform—and emerging competition?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 0, pages 1-11.
    3. Dean Karlan & Aishwarya Lakshmi Ratan & Jonathan Zinman, 2014. "Savings by and for the Poor: A Research Review and Agenda," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 36-78, March.
    4. J. Brandon Bolen & Gregory Elliehausen & Thomas W. Miller, 2020. "Do Consumers Need More Protection From Small‐Dollar Lenders? Historical Evidence And A Roadmap For Future Research," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1577-1613, October.
    5. Thomas A. Hemphill, 2020. "The small-dollar loan industry: a new era of regulatory reform—and emerging competition?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 55(3), pages 150-160, July.
    6. Jonathan Zinman, 2014. "Consumer Credit: Too Much or Too Little (or Just Right)?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 209-237.
    7. Bhutta, Neil, 2014. "Payday loans and consumer financial health," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 230-242.
    8. Robin Prager, 2014. "Determinants of the Locations of Alternative Financial Service Providers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 21-38, August.
    9. Desai, Chintal A. & Elliehausen, Gregory, 2017. "The effect of state bans of payday lending on consumer credit delinquencies," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 94-107.
    10. T. R. Harmon-Kizer, 2019. "Let the Borrower Beware: Towards a Framework for Debiasing Rollover Behavior in the Payday Loan Industry," Journal of Consumer Policy, Springer, vol. 42(2), pages 245-266, June.

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