A cross-sectional study of the relationship between political ideology and state legislative responses to payday lending

Abstract

The present study examines the relationship between state electorate and state government political ideologies and state legislative responses to payday lending. Payday lending is a form of short-term, high-interest credit (e.g., Graves, 2003; Karger, 2005), and components of states’ legislative responses toward payday lending regulation serve as dependent variables in this study. The internal determinants model serves as the policy innovation model, predicting the attributes of states that influence legislative responses to social constructs (Berry & Berry, 1999; Mohr, 1969). People espousing liberal political ideology believe in using governmental intervention to ensure corporate social responsibility, while those adhering to a conservative political ideology do not (Walters, 1977). The author predicted negative associations between political ideologies and components of state legislative responses to payday lending indicating more regulation. This study found four modest, significant correlations: (1) Between the percentage of each state’s electorate identifying as liberal and that state’s legislated maximum payday loan principle amount, (2) between the percentage of each state’s electorate identifying as conservative and that state’s legislated maximum payday loan principle amount, (3) between liberal state government political ideology and that state’s legislated maximum payday loan principle amount, and (4) between the percentage of each state’s electorate identifying as liberal and that state’s legislated payday loan implied maximum annual percentage rate. No relationship was found between liberal electorate political ideology and state legislated maximum payday loan maturity terms or fee disclosure requirements; between conservative electorate political ideology and state legislated payday loan implied maximum annual percentage rates, state legislated maximum payday loan maturity terms, or fee disclosure requirements; or between liberal state government political ideology and state legislated payday loan implied maximum annual percentage rates, state legislated maximum payday loan maturity terms, or fee disclosure requirements. This suggests that the internal determinant, liberal political ideology, is associated with using government intervention to regulate the state legislated maximum payday loan principle amounts and state legislated payday loan implied maximum annual percentage rates that payday loan consumers can be charged.