Regulating Payday Lending

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Degree type
Undergraduate
Graduate group
Discipline
Finance and Financial Management
Subject
Household Finance
Payday Lending
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Copyright date
2023
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Author
Sun, Michael
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Abstract

The 2017 Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans issued by the Consumer Financial Protection Bureau (CFPB) aimed to curb debt traps and better protect consumers from predatory small-dollar lending practices. By mandating ability-to repay analyses, limiting rollovers, and enhancing disclosure requirements, the rule sought to shield borrowers from unfavorable loan terms and harmful products. This paper investigates whether the CFPB achieved its intended policy objectives by examining the impact of the 2017 rule on consumer complaints regarding payday lenders. Using the CFPB’s public Consumer Complaint Database, I employ a difference-in-difference research design that measures changes in payday loan complaint volumes around the rule’s introduction relative to a control group of mortgage loan complaints. My analysis reveals a statisticallysignificant 18.4% increase in payday loan grievances reported to the CFPB after the rule took effect. These findings reflect success in empowering and educating consumers about their rights through disclosure requirements and financial literacy efforts, with elevated grievances signaling more assertive enforcement of violations.

Advisor
Guenzel, Marius
Date of degree
2024-05-21
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