Working Paper: NBER ID: w28765
Authors: Jialan Wang; Kathleen Burke
Abstract: Inspired by the field experiment in Bertrand and Morse (2011), the state of Texas adopted an information disclosure for consumers taking out payday loans starting in January, 2012. The disclosure compares the cost of payday loans with other credit products, and presents their likelihood of renewal in easy-to-understand terms. Simultaneously, Austin and Dallas implemented stricter supply restrictions through city ordinances. We analyze both types of regulations, and find that the statewide disclosures led to a significant and persistent 13% decline in loan volume in the first six months after implementation. The city ordinances led to a 61% decline in loan volume in Austin and a 44% decline in Dallas, with the timing of the effect driven by the start of enforcement rather than the effective date of regulation. The results show that both behaviorally-motivated disclosures and city-level supply restrictions can have a significant impact on equilibrium loan quantities, with no effect on prices or evidence of evasive income falsification.
Keywords: payday lending; disclosure regulation; consumer protection; enforcement; Texas
JEL Codes: D12; D14; G23; G28; G41; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Statewide disclosures implemented in January 2012 (H79) | 13% decline in loan volume (G21) |
| City ordinances in Austin (R48) | 61% decline in loan volume (G21) |
| City ordinances in Dallas (R48) | 44% decline in loan volume (G21) |
| Statewide disclosures implemented in January 2012 (H79) | discouragement of some consumers from taking out loans (G51) |
| City ordinances (R48) | significant impact on equilibrium loan quantities (F65) |
| Statewide disclosures and city ordinances (H79) | no observable effects on prices (F69) |
| Statewide disclosures and city ordinances (H79) | no significant spillovers to adjacent areas (F69) |