The Association Between Payday Lending and Economic Well Being, Evidence from State Level Panel Data from 1991-2013

Abstract

Payday lending, short-term loans for small amounts of money with high interest and fees,

is a controversial practice. Many have argued that it creates cycles of debt that harm

borrowers long-term economic well being. The research to this point has measured

different outcomes of economic well being with mixed results. In this paper I use panel

data from 1991 through 2013 for all states and Washington DC to measure the

association between laws allowing payday lending and two measures of economic well

being: income and the poverty rate. Although my results are largely mixed, contrary to

the prevailing popular notion, I find some evidence that payday lending may be

associated with benefits to economic well being.