Payday advances are controversial high-cost, short-term borrowing products, prohibited in several U.S. states.
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But debates surrounding their advantages to consumers carry on. We evaluate the consequences of pay day loans on customers simply by using a distinctive information set including 99% of loans authorized in britain over a two-year period matched to credit files. Using a regression discontinuity research design, our outcomes show that payday advances offer short-lived liquidity gains and encourage consumers to defend myself against credit that is additional. But, within the following months, pay day loans cause persistent increases in defaults and cause customers to surpass their bank overdraft limitations.