EXPLOITATION OF PAYDAY LOAN USERS: FACT OR FICTION?

Abstract

This paper explores the existence of different forms and underlying reasons for exploitation at the household level. The empirical analysis, based on data from the British Household Panel Survey (BHPS) collected to understand social and economic change in Britain, aims to identify the underlying factors behind mixed empirical evidence on the existence of exploitation among payday loan users. This paper goes beyond traditional economic explanations and focuses on factors defining conditional relative advantage exploitation leading to voluntary exploitation. The results suggest that, due to “acts of desperation”, current regulations on payday lending are powerless and cannot prevent households from being voluntarily exploited. In addition, the results show that an increased household financial burden and additional borrowing raise the likelihood of households taking risks in order to meet basic needs. The findings provide further insight into why current policy regulations fail to address the problem of payday lending.

Data:
Received: 18 Sep 2019
Revised: 10 Nov 2019
Accepted: 6 Dec 2019
Published: 20 Dec 2019