Identifying border effects of payday-lending regulations

Abstract

Using branch-level licensing data for 13 states, we examine cross-border effects of state-level payday-lending policies on new and operating branches within border counties from January 2005 to December 2010. We hypothesize branch counts are higher in border counties adjacent to states that restrict payday lending through prohibitive fee limits due to decreased competition and higher excess profits from cross-border markets. Predicted results for effects of enabling or non-existent payday lending policy are ambiguous; cross-border markets may or may not have increased competition given established market practices. Results show border counties adjacent to prohibitive states have 14 percent more operating branches and 83 percent more new branches than interior counties, suggesting clustering and expansion in regions with access to cross-border consumers that lack in-state access to payday loans. Border counties adjacent to states with enabling regulations have 30 percent more operating branches relative to interior counties, suggesting clustering in cross-border markets.