Dissertation

Consumer credit has become increasingly costly within the United States, with payday lending, an industry built on high-interest loans, as a prime example. My dissertation considers two supply-side factors that facilitate the proliferation of high-interest credit and impact consumer access to financial services: firm-level relationships between banks and payday lenders and uneven payday lending regulation.

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Image by Taber Andrew Bain is licensed under CC BY 2.0

First, I use archival financial documents from publicly-traded national payday lending chains to qualitatively assess the scope of, and motivations behind, financial relationships with banks. I find that some of the largest U.S. banks have provided consistent, long-term financial support to payday lenders. I develop the concept of financial symbiosis to describe how sustained, dependent exchanges of capital across firms operating in within the credit market may disrupt the marketplace for consumers.

Then, I examine whether these aspatial financial relationships impact branching patterns for banks within local markets. I construct a novel panel dataset of payday storefronts, bank branches, their financial relationships, and the zip codes they serve in the Denver Metropolitan Statistical Area between 1998 and 2014. I find the presence of payday lenders modestly increases the probability that banks that support the industry will move into the market, but this does not substantively differ from the entry patterns of other large banks. At the zip code level, involvement in payday lender financing does not produce distinctive branching patterns.

Finally, I assess the efficacy of key federal policy initiative that sought to protect military service members from high-interest lending: the 2007 Military Lending Act (MLA), which created a federal interest rate cap on loans to military members. I leverage state-level variation in payday lending laws in Colorado, Washington, and Oregon and find that the MLA alone had virtually no impact on reducing payday loan exposure in military communities. Conversely, state-wide restrictions limiting interest rates for all consumer loans was effective in reducing payday lender presence in all communities, including military areas. I contend that protective financial policies may be most effective if enacted through broader regulations and/or the development of public alternatives to high-interest lending.