Abstract
The Effects of Disclosure and Enforcement on Payday Lending in Texas
Highlights
This paper examines the effects of disclosure regulation and the interaction between regulation, enforcement, and compliance in the payday loan market
While we find that payday loan volume decreases both in response to statewide disclosures and city-mandated supply restrictions, we find no evidence of evasion in terms of income falsification or spillovers to stores just outside of city limits
We show that the Austin ordinance was mostly complied with following the enforcement date, and that the changes in overall loan volume were on par with what would be expected under full compliance
Summary
This paper examines the effects of disclosure regulation and the interaction between regulation, enforcement, and compliance in the payday loan market. Research on payday loans suggests that behavioral biases such as present bias, over-optimism, and limited attention may cause consumers to borrow and repay in ways that are not in their best interest.2 Motivated by this evidence, Bertrand and Morse (2011) conducted a field trial in which borrowers were given one of three behaviorallyinformed disclosures on the cash envelope they received after taking out a payday loan. Most of the literature on government intervention in financial markets relies solely on the letter and effective dates of regulation, in reality there is a complex interplay between lenders and regulators in the interpretation of and compliance with the rules.5 Both city ordinances became legally effective on January 1, 2012, but due to administrative delays, Austin did not begin enforcement until May 1, and Dallas did not begin until June 17.
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