This paper uses data from the January 2009 FDIC Unbanked/Underbanked Supplement to the Current Population Survey (CPS) to examine how household use of payday loans and pawn shops is related to limits on loan fees set by states. We use information in the CPS to measure the relationship between household characteristics and payday loan and pawn shop usage and to control for these factors in examining the relationship between usage and state fee ceilings. We find little relationship between levels of fee ceilings in their current range and payday loan usage. Results for pawn shops indicate somewhat more variation in usage over the current range of pawn-shop fee ceilings. The results are generally consistent with conjectures that because of scale economies at the store level, payday lenders can adjust the scale of store operations to maintain profit margins and thus continue to lend over a range of fee ceilings. This finding suggests that lowering loan fee ceilings up to some point can benefit borrowers, many of whom report using these loan to meet basic living expenses or to make up for lost income.
{"title":"Payday Loans versus Pawn Shops: The Effects of Loan Fee Limits on Household Use","authors":"R. Avery, Katherine A. Samolyk","doi":"10.2139/ssrn.2634584","DOIUrl":"https://doi.org/10.2139/ssrn.2634584","url":null,"abstract":"This paper uses data from the January 2009 FDIC Unbanked/Underbanked Supplement to the Current Population Survey (CPS) to examine how household use of payday loans and pawn shops is related to limits on loan fees set by states. We use information in the CPS to measure the relationship between household characteristics and payday loan and pawn shop usage and to control for these factors in examining the relationship between usage and state fee ceilings. We find little relationship between levels of fee ceilings in their current range and payday loan usage. Results for pawn shops indicate somewhat more variation in usage over the current range of pawn-shop fee ceilings. The results are generally consistent with conjectures that because of scale economies at the store level, payday lenders can adjust the scale of store operations to maintain profit margins and thus continue to lend over a range of fee ceilings. This finding suggests that lowering loan fee ceilings up to some point can benefit borrowers, many of whom report using these loan to meet basic living expenses or to make up for lost income.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131927731","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The congressionally appointed and bipartisan Financial Crisis Inquiry Commission last month released its final report on the causes of the U.S. financial crises in the first decade of the 21st century. This carefully researched report provides a balanced and thoughtful explanation of the causes of the recent financial crisis, blaming a range of policies implemented by both the Clinton administration and the Bush administration. Like the previous staff reports issued by the FCIC, this final report is excellent and well worth reading.Alas, this final report was issued only by a majority of the FCIC members, as the minority members released a dissent that concluded a narrower set of issues, including federal affordable housing policies, were the driving cause behind the financial crisis. Notably, FCIC minority member Peter Wallison, a senior fellow at the American Enterprise Institute, a conservative think tank based in Washington, D.C., issued his own separate dissent. Based on work done by his AEI colleague Edward Pinto, Wallison concludes federal affordable housing policies were the driving cause behind the financial crisis, causing a decline in underwriting standards that triggered the U.S. housing bubble.Wallison’s conclusion that affordable housing policies were the proximate cause of the financial crisis is integrally based on the claim that “[a]s a result of [U.S. government housing] policies, by the middle of 2007, there were approximately 27 million subprime and Alt-A mortgages in the U.S. financial system — half of all mortgages outstanding — with an aggregate value of over $4.5 trillion.” As Wallison clearly indicates in his FCIC dissent, all of the data that he relies on to form his conclusions come from the research of his AEI colleague Edward Pinto. Pinto’s work also is cited by other prominent conservatives, including U.C. Berkeley Haas Business School Professor Dwight Jaffee, New York University Professor Lawrence J. White, Columbia Business School Professor Charles Calomiris, Cato Institute Senior Fellow Richard Rahn, and Reuters columnist James Pethokoukis.Unfortunately, Pinto’s research is based on a series of faulty assumptions and serious methodological flaws that render his findings unusable. Pinto’s controversial conclusion that federal housing policies were responsible for 19 million high-risk mortgages is based on radically revised definitions for the two main categories of high-risk mortgages, subprime loans and so-called Alt-A mortgages, which refer to loans with low documentation of income and wealth. Importantly, these revised definitions are not consistent with how the terms subprime and Alt-A are ordinarily used, and the performance of these newly designated subprime and Alt-A loans is starkly superior to the performance of actual subprime and Alt-A loans, as this paper will demonstrate.As a result of his dramatically expanded new definitions that are not used by other leading scholars, Pinto’s findings on the extent
{"title":"Faulty Conclusions Built on Shoddy Foundations","authors":"David Min","doi":"10.2139/ssrn.2103379","DOIUrl":"https://doi.org/10.2139/ssrn.2103379","url":null,"abstract":"The congressionally appointed and bipartisan Financial Crisis Inquiry Commission last month released its final report on the causes of the U.S. financial crises in the first decade of the 21st century. This carefully researched report provides a balanced and thoughtful explanation of the causes of the recent financial crisis, blaming a range of policies implemented by both the Clinton administration and the Bush administration. Like the previous staff reports issued by the FCIC, this final report is excellent and well worth reading.Alas, this final report was issued only by a majority of the FCIC members, as the minority members released a dissent that concluded a narrower set of issues, including federal affordable housing policies, were the driving cause behind the financial crisis. Notably, FCIC minority member Peter Wallison, a senior fellow at the American Enterprise Institute, a conservative think tank based in Washington, D.C., issued his own separate dissent. Based on work done by his AEI colleague Edward Pinto, Wallison concludes federal affordable housing policies were the driving cause behind the financial crisis, causing a decline in underwriting standards that triggered the U.S. housing bubble.Wallison’s conclusion that affordable housing policies were the proximate cause of the financial crisis is integrally based on the claim that “[a]s a result of [U.S. government housing] policies, by the middle of 2007, there were approximately 27 million subprime and Alt-A mortgages in the U.S. financial system — half of all mortgages outstanding — with an aggregate value of over $4.5 trillion.” As Wallison clearly indicates in his FCIC dissent, all of the data that he relies on to form his conclusions come from the research of his AEI colleague Edward Pinto. Pinto’s work also is cited by other prominent conservatives, including U.C. Berkeley Haas Business School Professor Dwight Jaffee, New York University Professor Lawrence J. White, Columbia Business School Professor Charles Calomiris, Cato Institute Senior Fellow Richard Rahn, and Reuters columnist James Pethokoukis.Unfortunately, Pinto’s research is based on a series of faulty assumptions and serious methodological flaws that render his findings unusable. Pinto’s controversial conclusion that federal housing policies were responsible for 19 million high-risk mortgages is based on radically revised definitions for the two main categories of high-risk mortgages, subprime loans and so-called Alt-A mortgages, which refer to loans with low documentation of income and wealth. Importantly, these revised definitions are not consistent with how the terms subprime and Alt-A are ordinarily used, and the performance of these newly designated subprime and Alt-A loans is starkly superior to the performance of actual subprime and Alt-A loans, as this paper will demonstrate.As a result of his dramatically expanded new definitions that are not used by other leading scholars, Pinto’s findings on the extent ","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128030218","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper formally models the Public-Private Investment Partnership (PPIP), a plan for U.S. government sponsored purchases of distressed assets. This paper solves both the problem of the asset manager buying toxic assets and the banks selling toxic assets. It solves for the fair market value of toxic assets implied by subsidized toxic asset sales, and it estimates the size of the government's subsidy. Moreover, this paper finds the circumstances under which banks and asset managers will meet at mutually acceptable prices. In general, healthier banks will be more willing sellers of toxic assets than zombies.
{"title":"A Binomial Model of Geithner’s Toxic Asset Plan","authors":"Linus Wilson","doi":"10.2139/ssrn.1428666","DOIUrl":"https://doi.org/10.2139/ssrn.1428666","url":null,"abstract":"This paper formally models the Public-Private Investment Partnership (PPIP), a plan for U.S. government sponsored purchases of distressed assets. This paper solves both the problem of the asset manager buying toxic assets and the banks selling toxic assets. It solves for the fair market value of toxic assets implied by subsidized toxic asset sales, and it estimates the size of the government's subsidy. Moreover, this paper finds the circumstances under which banks and asset managers will meet at mutually acceptable prices. In general, healthier banks will be more willing sellers of toxic assets than zombies.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132689138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this lively new book, Kathleen C. Engel and Patricia A. McCoy tell the full story behind the subprime crisis. The authors, experts in the law and economics of financial regulation and consumer lending, offer a sharply reasoned, but accessible account of the actions that produced the greatest economic collapse since the Great Depression. The Subprime Virus reveals how consumer abuses in a once obscure corner of the home mortgage market led to the near meltdown of the world's financial system. Wall Street peddled subprime loans to investors through complex but dodgy financial instruments that spread like a virus. A central theme in the book is the role of federal banking and securities regulators, who were well aware of lenders' risky, deceptive mortgages and of Wall Street's addiction to high stakes financing. These regulators, believing that markets would self-correct, did nothing until the crisis erupted. While the spread of the subprime virus resulted from economic and political failures, its lessons inform the building of a new, more stable, prosperous and just financial order.
{"title":"The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps","authors":"Kathleen C. Engel, P. McCoy","doi":"10.5860/choice.48-7033","DOIUrl":"https://doi.org/10.5860/choice.48-7033","url":null,"abstract":"In this lively new book, Kathleen C. Engel and Patricia A. McCoy tell the full story behind the subprime crisis. The authors, experts in the law and economics of financial regulation and consumer lending, offer a sharply reasoned, but accessible account of the actions that produced the greatest economic collapse since the Great Depression. The Subprime Virus reveals how consumer abuses in a once obscure corner of the home mortgage market led to the near meltdown of the world's financial system. Wall Street peddled subprime loans to investors through complex but dodgy financial instruments that spread like a virus. A central theme in the book is the role of federal banking and securities regulators, who were well aware of lenders' risky, deceptive mortgages and of Wall Street's addiction to high stakes financing. These regulators, believing that markets would self-correct, did nothing until the crisis erupted. While the spread of the subprime virus resulted from economic and political failures, its lessons inform the building of a new, more stable, prosperous and just financial order.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133753478","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In 2007 and 2008 Professor Elizabeth Warren proposed a new federal consumer financial protection agency. The aim was to ensure the financial products consumers purchase meet minimum safety standards. That proposal has become part of the Dodd – Frank Wall Street Reform and Consumer Protection Act. This article explores whether the Act will usher in a new era of robust consumer protection. The focus of this article is on consumer protection in the mortgage markets. Its study of the mortgage markets occurs in an environment in which two public policy approaches were embraced and tested in the last three decades: a principle – based approach to regulation and a net societal benefits standard as the threshold for regulatory intervention. Part One of this article explores market outcomes in the 1982 to 2009 era of principles- based regulation. Contrary to the predicted benefit of congruence with the legislative purposes of safe and sound mortgage lending and fairness in lending transactions, this regulatory approach led to a significant increase in offerings of unsafe and unsound lending products, as well as unfair products. The Dodd – Frank Act alters the regulatory structure through the re-embrace of a rules-based standard for mortgage market operations, in the form of mandatory underwriting standards and specified, prescribed conduct. However, experience has demonstrated that a change in regulatory approach can more effectively lead to legislative congruence only if combined with enforcement measures that convince industry members that compliance is wise from a cost-benefit perspective. Industry cost-benefit evaluations, before and after the Dodd-Frank Act, are explored in Part three of this article.Part Two of the article examines outcomes in a regulatory regime that has embraced a net societal benefits threshold for regulatory intervention. The mortgage market experience in the post-1994 period is explored. It reveals that a net societal benefits threshold for regulatory intervention can easily lead to inaction on the part of regulatory agencies. In the long-term, the mortgage markets witnessed the evaporation of the net societal benefits that had led to regulatory inaction in the period prior to 2009. The Dodd – Frank Act reaffirms the legislative goal of fairness in credit market transactions but then, for the first time, expressly embraces a net societal benefits threshold for future regulatory interventions. This calls into question the likelihood that the new Consumer Financial Protection Agency will adequately protect consumers against future abusive lending practices.
2007年和2008年，伊丽莎白·沃伦教授提议成立一个新的联邦消费者金融保护机构。其目的是确保消费者购买的金融产品符合最低安全标准。该提议已成为《多德-弗兰克华尔街改革与消费者保护法案》的一部分。本文探讨该法案是否将迎来一个强有力的消费者保护的新时代。本文的重点是抵押贷款市场中的消费者保护。它对抵押贷款市场的研究发生在一个环境中，在过去30年里，有两种公共政策方法得到了接受和考验:一种是基于原则的监管方法，另一种是将净社会效益标准作为监管干预的门槛。本文第一部分探讨了1982年至2009年基于原则的监管时代的市场结果。与安全可靠的抵押贷款和贷款交易公平的立法目的相一致的预期利益相反，这种监管方法导致了不安全和不可靠的贷款产品以及不公平产品的显著增加。《多德-弗兰克法案》(Dodd - Frank Act)改变了监管结构，重新采用了基于规则的抵押贷款市场操作标准，其形式是强制性承销标准和具体规定的行为。然而，经验表明，只有与执法措施相结合，使行业成员相信从成本效益的角度来看，遵守是明智的，监管方法的改变才能更有效地导致立法一致性。本文的第三部分探讨了多德-弗兰克法案前后的行业成本效益评估。文章的第二部分考察了监管制度的结果，该制度已经接受了监管干预的净社会效益门槛。探讨了1994年以后抵押贷款市场的经验。它揭示了监管干预的净社会效益阈值很容易导致监管机构的不作为。从长期来看，抵押贷款市场见证了净社会效益的蒸发，这导致了2009年之前监管的不作为。《多德-弗兰克法案》(Dodd - Frank Act)重申了信贷市场交易公平的立法目标，但随后首次明确提出了未来监管干预的净社会效益门槛。这让人怀疑新的消费者金融保护局是否能充分保护消费者免受未来滥用贷款行为的侵害。
{"title":"The Federal Financial Consumer Protection Agency: A New Era of Protection or More of the Same?","authors":"Vincent DiLorenzo","doi":"10.2139/SSRN.1674016","DOIUrl":"https://doi.org/10.2139/SSRN.1674016","url":null,"abstract":"In 2007 and 2008 Professor Elizabeth Warren proposed a new federal consumer financial protection agency. The aim was to ensure the financial products consumers purchase meet minimum safety standards. That proposal has become part of the Dodd – Frank Wall Street Reform and Consumer Protection Act. This article explores whether the Act will usher in a new era of robust consumer protection. The focus of this article is on consumer protection in the mortgage markets. Its study of the mortgage markets occurs in an environment in which two public policy approaches were embraced and tested in the last three decades: a principle – based approach to regulation and a net societal benefits standard as the threshold for regulatory intervention. Part One of this article explores market outcomes in the 1982 to 2009 era of principles- based regulation. Contrary to the predicted benefit of congruence with the legislative purposes of safe and sound mortgage lending and fairness in lending transactions, this regulatory approach led to a significant increase in offerings of unsafe and unsound lending products, as well as unfair products. The Dodd – Frank Act alters the regulatory structure through the re-embrace of a rules-based standard for mortgage market operations, in the form of mandatory underwriting standards and specified, prescribed conduct. However, experience has demonstrated that a change in regulatory approach can more effectively lead to legislative congruence only if combined with enforcement measures that convince industry members that compliance is wise from a cost-benefit perspective. Industry cost-benefit evaluations, before and after the Dodd-Frank Act, are explored in Part three of this article.Part Two of the article examines outcomes in a regulatory regime that has embraced a net societal benefits threshold for regulatory intervention. The mortgage market experience in the post-1994 period is explored. It reveals that a net societal benefits threshold for regulatory intervention can easily lead to inaction on the part of regulatory agencies. In the long-term, the mortgage markets witnessed the evaporation of the net societal benefits that had led to regulatory inaction in the period prior to 2009. The Dodd – Frank Act reaffirms the legislative goal of fairness in credit market transactions but then, for the first time, expressly embraces a net societal benefits threshold for future regulatory interventions. This calls into question the likelihood that the new Consumer Financial Protection Agency will adequately protect consumers against future abusive lending practices.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131050586","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article discusses Holbert v. Fremont Inv. & Loan where a homeowner refinanced her home numerous times in the recent past and asks whether she would now be better off to default.
这篇文章讨论了Holbert v. Fremont Inv. & Loan案，其中一位房主在最近的过去多次为她的房屋进行再融资，并询问她现在是否违约会更好。
{"title":"The Cost of Defaulting","authors":"R. Bernhardt","doi":"10.2139/SSRN.1762829","DOIUrl":"https://doi.org/10.2139/SSRN.1762829","url":null,"abstract":"This article discusses Holbert v. Fremont Inv. & Loan where a homeowner refinanced her home numerous times in the recent past and asks whether she would now be better off to default.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130394528","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mortgage-backed security prices have depended on interest rates, while idiosyncrasies of prepayments had obscured the effect of rates on portfolio value before the financial crisis. The principal components of balance sheet accounts identified managerial dimensions that could help clarify the portfolio sensitivity to interest rates. The real impact of prepayments and default on the value of equity had appeared negligible since the first two components were correlated, as was required by hedge-accounting rules at that time.
{"title":"Mortgage Prepayments as a Precursor to the Financial Crisis","authors":"Apostolos Xanthopoulos","doi":"10.2139/ssrn.2296340","DOIUrl":"https://doi.org/10.2139/ssrn.2296340","url":null,"abstract":"Mortgage-backed security prices have depended on interest rates, while idiosyncrasies of prepayments had obscured the effect of rates on portfolio value before the financial crisis. The principal components of balance sheet accounts identified managerial dimensions that could help clarify the portfolio sensitivity to interest rates. The real impact of prepayments and default on the value of equity had appeared negligible since the first two components were correlated, as was required by hedge-accounting rules at that time.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"47 1-2","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114047143","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Rapidly changing credit and housing market conditions of the past fifteen years have markedly impacted home ownership rates. Home ownership rates in the United States have increased steadily and significantly from 1995 to 2004, from 64 percent to 69 percent. No additional increase in home ownership, in the aggregate, occurred with the expansion of non prime lending after 2004. By year-end 2008, the overall U.S. home ownership rate had fallen to a level below that of 2002. As delinquencies and foreclosures mount, putting the nation's homeowners and the economy at risk, home ownership rates continue to decline. We review the evidence pertaining to home ownership rates, explore the possible role of financial institutions in increasing home ownership in sustainable and unsustainable ways, and address the role of regulation. We review evidence suggesting how flexible lending initiatives have expanded access to home ownership. We also examine the role of non prime lending and the consequences of housing market price instability for home ownership. Fluctuations in the availability of credit for home ownership, and the global credit market collapse raise questions that we cannot answer here about the mistakes that have contributed to the current housing crisis. Nonetheless, evidence on market outcomes allows us at least to raise such questions, and explore the role of regulation in supporting responsible mortgage lending that encourages sustainable home ownership.
{"title":"Sustainable Homeownership","authors":"P. Calem, Susan M. Wachter, M. Courchane","doi":"10.2139/ssrn.1365436","DOIUrl":"https://doi.org/10.2139/ssrn.1365436","url":null,"abstract":"Rapidly changing credit and housing market conditions of the past fifteen years have markedly impacted home ownership rates. Home ownership rates in the United States have increased steadily and significantly from 1995 to 2004, from 64 percent to 69 percent. No additional increase in home ownership, in the aggregate, occurred with the expansion of non prime lending after 2004. By year-end 2008, the overall U.S. home ownership rate had fallen to a level below that of 2002. As delinquencies and foreclosures mount, putting the nation's homeowners and the economy at risk, home ownership rates continue to decline. We review the evidence pertaining to home ownership rates, explore the possible role of financial institutions in increasing home ownership in sustainable and unsustainable ways, and address the role of regulation. We review evidence suggesting how flexible lending initiatives have expanded access to home ownership. We also examine the role of non prime lending and the consequences of housing market price instability for home ownership. Fluctuations in the availability of credit for home ownership, and the global credit market collapse raise questions that we cannot answer here about the mistakes that have contributed to the current housing crisis. Nonetheless, evidence on market outcomes allows us at least to raise such questions, and explore the role of regulation in supporting responsible mortgage lending that encourages sustainable home ownership.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129089219","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Building on prior literature that constrained individuals consume the most out of a tax rebate, we study the tradeoffs high interest borrowers face when they received their 2008 tax stimulus checks. We find a persistent decline in payday borrowing in the pay cycles that follow the receipt of the tax rebate. The reduction in borrowing is a significant fraction of the mean outstanding loan (12%) and appears fairly persistent over the time, but is moderate in dollar magnitude (about $35) relative to the size of the rebate check ($600 per person). In trying to reconcile this finding with the cost of not retiring expensive payday debt, we find substantial heterogeneity across borrowers. Among individuals that we classify as temptation spenders (e.g. those that use 400% APR loans to buy electronic goods or go on vacation), we find no reduction in payday borrowing after the tax rebate is issued, but this group represents only a small fraction of payday borrowers. A second group for which we find no debt retirement post-check is the set of borrowers that appear to use what should be short-term payday loans as a long-term financing solution. We infer that the marginal use of the tax rebate for this group was to deal with regular monthly obligations, such as paying down late utility bills or making rent payments.
{"title":"What do High-Interest Borrowers do with Their Tax Rebate?","authors":"Marianne Bertrand, Adair Morse","doi":"10.2139/ssrn.1344489","DOIUrl":"https://doi.org/10.2139/ssrn.1344489","url":null,"abstract":"Building on prior literature that constrained individuals consume the most out of a tax rebate, we study the tradeoffs high interest borrowers face when they received their 2008 tax stimulus checks. We find a persistent decline in payday borrowing in the pay cycles that follow the receipt of the tax rebate. The reduction in borrowing is a significant fraction of the mean outstanding loan (12%) and appears fairly persistent over the time, but is moderate in dollar magnitude (about $35) relative to the size of the rebate check ($600 per person). In trying to reconcile this finding with the cost of not retiring expensive payday debt, we find substantial heterogeneity across borrowers. Among individuals that we classify as temptation spenders (e.g. those that use 400% APR loans to buy electronic goods or go on vacation), we find no reduction in payday borrowing after the tax rebate is issued, but this group represents only a small fraction of payday borrowers. A second group for which we find no debt retirement post-check is the set of borrowers that appear to use what should be short-term payday loans as a long-term financing solution. We infer that the marginal use of the tax rebate for this group was to deal with regular monthly obligations, such as paying down late utility bills or making rent payments.","PeriodicalId":196559,"journal":{"name":"LSN: Consumer Credit Issues (Sub-Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124550521","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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