Regulation and recent trends in high-interest credit markets

Abstract

In this article we review the contested effects of traditional payday loans on borrowers and describe recent regulatory changes to the product. We then provide detail on the institutional features and regulation-to the extent that there is any-of new products emerging to fill demand that remains when payday loans are more strictly regulated. Little is known about the effects of these new loan products on borrowers. What is certain is that state restrictions have led lenders to modify their loans to narrowly evade restrictions on interest rates, loan lengths, loan sizes, and repayment procedures like allowing loans to roll over. We focus on the starkest changes to small-dollar credit regulation that have occurred recently, including the development of high-interest installment loans, so-called flex loans offered by payday lenders, and the fintech creation of earned wage advance products.