Notes on coding by type of regulation

Notes on coding by type of regulation


AVERY, R., AND K. SAMOLYK (2011): “Payday Loans versus Pawnshops: The Effects of Loan Fee Limits on Household Use”, Working paper.

BHUTTA, N., P. SKIBA, AND J. TOBACMAN (2012): “Payday Loan Choices and Consequences,” Vanderbilt University Law & Economics Working Paper no. 12-30.

FDIC (2013): Addendum to the 2011 FDIC National Survey of Unbanked and Underbanked Households: Use of Alternative Financial Services, Federal Deposit Insurance Corporation.

GRAVES, S., AND C. PETERSON (2008): “Usury Law and The Christian Right: Faith-Based Political Power and the Geography of American Payday Loan Regulation,” Catholic University Law Review, 57(3).

MELZER, B. (2011): “The Real Costs of Credit Access: Evidence from the Payday Lending Market,” Quarterly Journal of Economics, 126, 517-555.

MORGAN, D., AND M. STRAIN (2008): “Payday Holiday: How Households Fare after Payday Credit Bans,” Federal Reserve Bank of New York Staff Reports, no. 309.

PARRISH, L., AND U.KING (2009): “Phantom Demand: Short-term due date generates need for repeat payday loans, accounting for 76% of total volume,” Center for Responsible Lending.

Price caps

For analytical tractibility this paper collapses complex fee schedules into a single number: the dollar limit on fees for a hypothetical $300 loan. For example, Indiana limits fees to 15% of the first $250 lent, 13% of the next $251-$400, and 10% of anything above that. In this case the fee for a $300 loan would be . All caps are considered inclusive of database fees, verification fees, and other add-on fees. States without any price cap are treated as if they had a cap equal to the highest cap of any state in the data, which is the $ cap for Virginia after .

Size caps

States vary according to whether their size cap is stated inclusive of exclusive of fees. For comparability, this paper codes all size caps as if they were exclusive of fees. In other words, if a state limits loan size to $500 inclusive of fees, as for instance Nebraska does, this is coded as an exclusive size limit of $425 because $75 has gone to fees. (Technically a lender in Nebraska could offer a loan with principal higher than $425 if its fees were set below the state statuatory maximum, but in practice lenders tend to charge the maximum allowed.) For states that set their size cap as the minimum of an absolute size limit and a percentage of the borrower’s monthly limit I assume an annual income of $31,000, which is the median annual income of payday loan borrowers in the 2010 Survey of Consumer Finances. Using this income level, monthly income limits are not binding for any state. States with no size caps are coded as having a cap equal to the cap in the state with the highest cap, which is $1000 for Idaho.

Minimum term limits

For states that set the minimum term limit in terms of pay periods rather than days, a standard pay period of 2 weeks is assumed. For instance, Virginia’s limit of 2 pay periods is coded as 28 days.

Maximum term limits

States with no maximum term limits are coded as having a limit equal to the state with the highest legal limit, which is 60 days for Kentucky.

Limits on simultaneous borrowing

Simultaneous borrowing limits are divided into two variables: the limit on absolute number of loans, and the limit of the number of loans per lender. In regression analysis both of these are collapsed into binary variables. These variables take the value 1 if the state limits customers to one loan at a time, and 0 otherwise. This means that states limiting customers to two or more loans at a time are considered equivalent to states with no limit. This decision was made in light of the fact that in states with no limit it is rare to borrow more than two loans at a time; therefore, a limit of two loans is unlikely to be binding on many customers.

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