Defining and detecting predatory lending

Arbeitspapier

We define predatory lending as a welfare-reducing provision of credit. Using a textbook model, we show that lenders profit if they can tempt households into “debt traps,” that is, overborrowing and delinquency. We then test whether payday lending fits our definition of predatory. We find that in states with higher payday loan limits, less educated households and households with uncertain income are less likely to be denied credit, but are not more likely to miss a debt payment. Absent higher delinquency, the extra credit from payday lenders does not fit our definition of predatory. Nevertheless, it is expensive. On that point, we find somewhat lower payday prices in cities with more payday stores per capita, consistent with the hypothesis that competition limits payday loan prices.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 273

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Household Saving; Personal Finance ; Consumer Protection ; Asymmetric and Private Information; Mechanism Design
• Subject: predatory, payday, consumer ; Verbraucherkredit ; Hypothek ; Wucher ; Private Verschuldung ; Theorie ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Morgan, Donald P.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/60671
• Last update: 10.03.2025, 11:42 AM CET