State Outcomes of Payday Regulation

Abstract

Payday lending is a form of short term credit that charges a per dollar fee for borrowing and is most commonly used by credit constrained individuals (Huckstep 2007). The first payday loan location opened in 1993 (Gallmeyer and Roberts, 2009). It has grown in popularity since its introduction in the 1990s and is currently one of the fastest growing consumer finance products (Caskey, 2001). There are more payday lending locations in the United States than McDonalds and Starbucks combined which is over lending 50,000 locations (Zinman, 2010). To take out a payday loan a borrower demonstrates proof of employment such as a paystub and proof that they have a checking account (Caskey, 2001). Payday lenders rarely run a formal credit check (Morse, 2011). The borrower writes a post-dated check for the loan amount plus fees (Huckstep, 2007). This post-dated check serves as collateral. The loan is typically due on the borrower’s next payday (Huckstep, 2007). The goal of this study is to determine if there is a relationship between the legality of payday lending and the poverty outcomes in a state.