Do Payday Loans Cause Bankruptcy?

An estimated ten million American households borrow on payday loans each year. Despite the prevalence of these loans, little is known about the effects of access to this form of short-term, high-cost credit. We match individual-level administrative records on payday borrowing to public records on personal bankruptcy, and we exploit a regression discontinuity to estimate the causal impact of access to payday loans on bankruptcy filings. Though the size of the typical payday loan is only $300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points. There appear to be two components driving this large effect. First, consumers are already financially stressed when they begin borrowing on payday loans. Second, approved applicants borrow repeatedly on payday loans and pawn loans, which carry very high interest rates. For the subsample that identifies our estimates, the cumulative interest burden from payday and pawn loans amounts to roughly 11% of the total liquid debt interest burden at the time of bankruptcy filing

Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?

Using a unique dataset matched at the individual level from two administrative sources, we examine household choices between liabilities and assess the informational content of prime and subprime credit scores in the consumer credit market. First, more specifically, we assess consumers' effectiveness at prioritizing use of their lowest-cost credit option. We find that most borrowers from one payday lender who also have a credit card from a major credit card issuer have substantial credit card liquidity on the days they take out their payday loans. This is costly because payday loans have annualized interest rates of at least several hundred percent, though perhaps partly explained by the fact that borrowers have experienced substantial declines in credit card liquidity in the year leading up to the payday loan. Second, we show that FICO scores and Teletrack scores have independent information and are specialized for the types of lending where they are used. Teletrack scores have eight times the predictive power for payday loan default as FICO scores. We also show that prime lenders should value information about their borrowers' subprime activity. Taking out a payday loan predicts nearly a doubling in the probability of serious credit card delinquency over the next year.

Pecuniary Mistakes? Payday Borrowing by Credit Union Members

This chapter examines patterns of financial choices by a credit union’s members using transaction-level administrative data on checking, savings, and line-of-credit (LOC) accounts. We observe substantial payday loan use when cheaper sources of liquidity are available, resulting in average interest losses of about $88 over six and a half months. In addition, we find much higher levels of transaction activity by payday borrowing members than by other members, at half the average transaction dollar magnitude. These results are consistent with previous work identifying financial stress and decision-making challenge

Predictability of Arbitrators\u27 Reliance on External Authority?

Should arbitrators consider authority-such as statutes or case law-external to the collective bargaining agreement when deciding labor grievances? Do they rely on such external authority? If so, do they do so in particular circumstances or in certain types of cases? To provide more insight on this often-debated issue, we have amassed a new data set of hundreds of labor arbitration awards spanning a decade. In contrast to previous research, we find that the overwhelming majority of awards do not cite to any external authority (statutes, administrative authorities, case law, or secondary sources). Yet, only a small fraction of awards explicitly decline to address a statutory issue or do not address external authority cited by one of the parties and mentioned in the award. Other significant findings: one or both parties being represented by an attorney in the arbitration hearing correlates with citation to external authority. Instances where arbitrators are drawn from the American Arbitration Association or the Federal Mediation and Conciliation Service rosters result in a greater likelihood of citation to authority than when arbitrators are selected without aid of a service provider. Awards addressing claims asserting a breach of a just-cause provision are more likely than other types of contractual claims to cite to external authority

Do Payday Loans Cause Bankruptcy?

Payday loans are used by millions of Americans every year despite their annualized interest rates of several hundred percent. We provide new evidence on the consequences of payday borrowing and the determinants of personal bankruptcy. Using an administrative panel data set of loan records in a regression-discontinuity design, we estimate that payday loans increase personal bankruptcy rates by a factor of two. We assess possible mechanisms and find the most support for a novel one: payday loan access appears to induce bankruptcy filings by worsening the cash flow position of the household

To bear, or not to bear: is that an economics question?

Weighing the costs vs. the benefits of having children may seem like a cold-blooded exercise. Yet such an analysis can help us understand not only such private decisions but public policies, too.Population ; Human capital

Is Labor Arbitration Lawless?

Labor arbitration is often viewed as a more peaceful, productive, and private alternative to workplace strikes and violence. On the other hand, statutory laws are intended to protect all workers, and contract law default rules and rules of interpretation often serve a protective role that could be harmful if ignored in this private dispute resolution setting. To provide more insight into how arbitrators decide labor disputes, we utilize our newly crafted data set of hundreds of labor arbitration awards spanning a decade. Unlike prior data sets, our data are more inclusive: they include both published and unpublished awards as well as cases decided by non-AAA arbitrators and industrial boards, enabling a fuller-and thus potentially more credible-study of differing types of labor arbitration. We find-counter to previous research-that the vast majority of awards do not cite to external authority such as statutes, administrative authorities, or case law, or to secondary sources. Yet, our awards provide little evidence that arbitrators explicitly declined to address a statutory issue raised by one of the parties. These findings indicate there is perhaps much more room for labor arbitrators to refer to external authority in their decision- making. Our results also indicate that reference to governing law depends on factors like attorney representation and service provider guidance. If so, our study has potential implications for the structure and desirability of arbitration for labor disputes as well as for other types of arbitration, including employment, consumer, and securities arbitrations. The inherent tension between peaceful, quick, private dispute resolution and the risks of potential lawlessness might be greater for the resolution of statutory claims, and if so, our study has implications for the desirability and structure of the arbitration of such claims. For example, examination of external authority and written reasoning could be required for the binding resolution of statutory claims in labor arbitration. Moreover, our more inclusive study indicates that there remains an inherent tension between peaceful, quick dispute resolution and the risks of potential lawlessness. More broad studies are warranted