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Title:Defining and detecting predatory lending PDF Logo
Authors:Morgan, Donald P.
Issue Date:2007
Series/Report no.:Staff Report, Federal Reserve Bank of New York 273
Abstract: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.
Subjects:predatory, payday, consumer
JEL:G18
G21
D14
D18
D82
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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