Information Asymmetries in Consumer Credit Markets: Evidence from Payday Loans

2011 ◽  
Author(s):  
Paige Marta Skiba ◽  
Will Dobbie
Keyword(s):  
Credit Markets ◽  
Consumer Credit ◽  
Information Asymmetries ◽  
Payday Loans

scholarly journals Information Asymmetries in Consumer Credit Markets: Evidence from Payday Lending

2013 ◽  
Vol 5 (4) ◽  
pp. 256-282 ◽  
Author(s):  
Will Dobbie ◽  
Paige Marta Skiba
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Regression Discontinuity ◽  
Credit Markets ◽  
Consumer Credit ◽  
Probability Of Default ◽  
Information Asymmetries ◽  
Payday Lending ◽  
Loan Market ◽  
Payday Loans

Information asymmetries are prominent in theory but difficult to estimate. This paper exploits discontinuities in loan eligibility to test for moral hazard and adverse selection in the payday loan market. Regression discontinuity and regression kink approaches suggest that payday borrowers are less likely to default on larger loans. A $50 larger payday loan leads to a 17 to 33 percent drop in the probability of default. Conversely, there is economically and statistically significant adverse selection into larger payday loans when loan eligibility is held constant. Payday borrowers who choose a $50 larger loan are 16 to 47 percent more likely to default. (JEL D14, D82, G21)

Protecting the Desperate: The Regulation of Payday Lending

2015 ◽  
Vol 43 (1) ◽  
pp. 147-176
Author(s):  
Andrew J Serpell
Keyword(s):  
Consumer Credit ◽  
Law Reform ◽  
Payday Lending ◽  
Short Term ◽  
Payday Loans ◽  
The Law ◽  
The Right ◽  
Credit Contracts ◽  
The Cost

Payday loans are small-amount, short-term, unsecured, high-cost credit contracts provided by non-mainstream credit providers. Payday loans are usually taken out to help the consumer pay for essential items, such as food, rent, electricity, petrol, broken-down appliances or car registration or repairs. These consumers take out payday loans because they cannot — or believe that they cannot — obtain a loan from a mainstream credit provider such as a bank. In recent years there has been a protracted debate in Australia — and in several overseas jurisdictions — about how to regulate the industry. Recent amendments to the National Consumer Credit Protection Act 2009 (Cth) — referred to in this article as the 2013 reforms — are designed to better protect payday loan consumers. While the 2013 reforms provide substantially improved protection for payday loan consumers, further changes to the law may be warranted. This article raises several law reform issues which should be considered as part of the 2015 review into small amount credit contracts, including whether the caps on the cost of credit are set at the right level, whether the required content and presentation of the consumer warnings needs to be altered, whether more needs to be done to protect consumers who are particularly disadvantaged or vulnerable and whether a general anti-avoidance provision should be included in the credit legislation.

scholarly journals The Effects of Competition in Consumer Credit Markets

2018 ◽  
Author(s):  
Stefan Gissler ◽  
Rodney Ramcharan ◽  
Edison Yu
Keyword(s):  
Credit Markets ◽  
Consumer Credit

scholarly journals The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets

2018 ◽  
Author(s):  
Andres Liberman ◽  
Christopher Neilson ◽  
Luis Opazo ◽  
Seth Zimmerman
Keyword(s):  
Credit Markets ◽  
Consumer Credit

scholarly journals The Effects of Competition in Consumer Credit Markets

2020 ◽  
Vol 33 (11) ◽  
pp. 5378-5415
Author(s):  
Stefan Gissler ◽  
Rodney Ramcharan ◽  
Edison Yu
Keyword(s):  
Credit Risk ◽  
Credit Markets ◽  
Consumer Credit ◽  
Extensive Margin ◽  
Credit Policy ◽  
Default Rates

Abstract This paper finds that banks and nonbanks respond differently to increased competition in consumer credit markets. Increased competition and a greater threat of failure induces banks to specialize in relationship business lending, and surviving banks are more profitable. However, nonbanks change their credit policy when faced with more competition and expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the effects of competition depend on the form of intermediation. They also suggest that increased competition can cause credit risk to migrate outside the traditional supervisory umbrella.

scholarly journals Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

2005 ◽  
Vol 95 (5) ◽  
pp. 1688-1699 ◽  
Author(s):  
Dean S Karlan
Keyword(s):  
Social Capital ◽  
Public Goods ◽  
Experimental Economics ◽  
External Validity ◽  
Credit Markets ◽  
Trust Game ◽  
Information Asymmetries ◽  
Group Lending ◽  
Financial Decisions

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as “trustworthy” by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of “trusting” individuals.

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