The Increase in Payday Loans and Damaged Credit after the Great Recession

Abstract

The proportion of US households that used a high-cost credit product, payday loans, almost doubled between 2007 and 2013. In this study, we estimated the effect of credit constraints on the likelihood of using payday loans. Based on a logistic regression of data from the 2007–2013 Survey of Consumer Finances (SCF), we found that households with credit constraints were more likely to use payday loans than were those that did not experience such constraints, and that the effect was greater after the Great Recession. Over the survey years, having an emergency expense was the most important reason given for using a payday loan, but the rate at which other reasons were given varied over time. Paying bills/loans and having no other credit options were both reasons given more frequently following the Great Recession than in 2007.