July 2016

For Better and for Worse? Effects of Access to High-Cost Consumer Credit

Christine L. Dobridge


I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high-cost payday loans over time, I find that payday credit access improves well-being for households in distress by helping them smooth consumption. In periods of temporary financial distress--after extreme weather events like hurricanes and blizzards--I find that payday loan access mitigates declines in spending on food, mortgage payments, and home repairs. In an average period, however, I find that access to payday credit reduces well-being. Loan access reduces spending on nondurable goods overall and reduces housing- and food-related spending particularly. These results highlight the state-dependent nature of the effects of high-cost credit as well as the consumption-smoothing role that it plays for households with limited access to other forms of credit.

Accessible materials (.zip)

Keywords: Consumer credit, Consumption, Household finance, Payday loans

DOI: http://dx.doi.org/10.17016/FEDS.2016.056

PDF: Full Paper

Back to Top
Last Update: June 19, 2020