Dissertation/Thesis Abstract

Usury revisited: Can state regulation of payday lending reduce bankruptcy rates?
by Valenti, Joseph J., M.P.P., Georgetown University, 2010, 50; 1475164
Abstract (Summary)

Sixteen states and the District of Columbia currently ban payday lending, short-term small-dollar loans typically associated with annualized interest rates above 200%. Five states and the District of Columbia have initiated payday lending bans within the past four years. A multivariate regression analysis using court district-level bankruptcy data (n=90) from 2006 to 2009, along with indicator variables for payday lending bans and demographic and economic control variables, tests for the effect of payday lending authorization on Chapter 7 (liquidation) and Chapter 13 (debt repayment) bankruptcy rates. While cross-sectional and year-effects models demonstrate a statistically significant increase in Chapter 7 bankruptcies where payday lending is permitted, there is no link with regard to Chapter 13. Once individual district effects are accounted for in a fixed-effects model, there is no measurable impact of recent payday lending bans, and a Hausman test rejects statistically significant random effects models. Despite limitations inherent in fixed-effects estimation, it is possible that there is a long-term relationship between permitting payday lending and higher bankruptcy rates, as suggested by other model specifications. Recommendations for further analysis include greater use of individual-level and industry data, exploration of the factors leading to states’ legislative action on payday lending, and a more thorough examination of the confounding relationship that both African-Americans and Native Americans have with the bankruptcy process.

Indexing (document details)
Advisor: Marron, Donald
School: Georgetown University
Department: Public Policy & Policy Management
School Location: United States -- District of Columbia
Source: MAI 48/05M, Masters Abstracts International
Subjects: Economics, Political science, Public policy
Keywords: Bankruptcy, Consumer protection, Financial access, Payday lending, Short-term lending, State regulation
Publication Number: 1475164
ISBN: 978-1-109-72153-9
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