Borrow Now, Complain Later: Payday Lending Laws and Spillovers Across Consumer Finance

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RWP 26-14, October 2026

Does prohibiting payday lending help or harm consumers? Using a county-year panel merging Consumer Financial Protection Bureau complaint data with state payday lending laws, we exploit within-county variation to show that prohibiting payday lending is associated with reduction in consumer financial complaints by 90 percent. Critically, fewer than 1 percent of the reduction involves complaints against payday lenders directly. Instead, credit reporting complaints account for 89 percent of the total effect, with significant reductions in debt collection, credit card, mortgage, and large-bank complaints—a pattern consistent with a financial distress cascade that extends beyond the payday market. Text analysis of complaint narratives is consistent with the cascade at the micro level: Downstream complaints in states permitting payday lending disproportionately mention payday-related terms, providing additional support for the proposed cascade mechanism. Prohibition is also associated with a 7.4 percentage point lower probability of explanation-only closure for complaints against payday lenders. Effects concentrate in high-poverty, high-inequality, and concentrated-banking counties. Household-level evidence from the Federal Reserve’s SHED survey corroborates these patterns: Residents of payday-prohibiting states report significantly greater ability to cover emergency expenses, and payday loan use decreases among low-income, low-education, and minority households.

JEL classifications: G21, G28, G51, D14, D18, K23