Can an Interest-Free Credit Facility Be More Efficient than a Usurious Payday Loan?

Making Interest-free Banking System More Efficient with Regards to Interest Rate

Can a "Credit Crunch" Be Efficient?

The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Can there be more predators than prey?

One of the few general “theorems” of ecology is the statement that in a given habitat there can be no more species present than the number of limiting resources. Our aim is to examine several of the versions of this “theorem” present in the literature, to compare them and to consider the underlying assumptions and definitions so as to decide to what ecological situations the theorem is applicab...

Competition and Adverse Selection in the Small-Dollar Loan Market: Overdraft versus Payday Credit

We find that competition from payday lenders leads depository institutions to raise overdraft fees and reduce the availability of “free” checking accounts. We attribute this rise in prices partly to adverse selection created by banks’ practice of charging a flat fee regardless of the overdraft amount―pricing that favors depositors prone to large overdrafts. Payday credit is priced per dollar bo...

Payday Loan Rollovers and Consumer Welfare

Using payday-lender administrative data matched to borrower credit attributes from a national credit bureau, I find that borrowers who engage in protracted refinancing (“rollover”) activity have better financial outcomes (measured by changes in credit scores) than consumers whose borrowing is limited to shorter periods. These results are robust to an alternative definition of a “rollover” that ...