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The Real Costs of Credit Access: Evidence from the Payday Lending Market, Quarterly Journal of Economics


Using geographic differences in the availability of payday loans, I estimate the real effects of credit access among low-income households. Payday loans are small, high interest rate loans that constitute the marginal source of credit for many high risk borrowers. I find no evidence that payday loans alleviate economic hardship. To the contrary, loan access leads to increased difficulty paying mortgage, rent and utilities bills. The empirical design isolates variation in loan access that is uninfluenced by lenders’ location decisions and state regulatory decisions, two factors that might otherwise correlate with economic hardship measures. Further analysis of differences in loan availability—over time and across income groups—rules out a number of alternative explanations for the estimated effects. Counter to the view that improving credit access facilitates important expenditures, the empirical results suggest that for some low-income households the debt service burden imposed by borrowing inhibits their ability to pay important bills.




Brian Melzer

Date Published



Melzer, Brian. 2011. The Real Costs of Credit Access: Evidence from the Payday Lending Market. Quarterly Journal of Economics. 126(1): 517-555.


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