Are Bigger Companies Better for Low-Income Borrowers?: Evidence from Payday and Title Loan Advertisements

Abstract

Payday lending and title lending markets are dominated by a small number of large lenders. Recent policy intervention into these markets in Colorado has increased this dominance as some smaller lenders have closed shop. The Consumer Financial Protection Bureau is on the verge of regulating payday loans, creating the potential for larger companies to gain an even more prominent place in this market nationally. But, before we implement regulation that could unintentionally bolster large lenders, we need to ask: Are bigger companies better for low-income borrowers?

This Article attempts to answer this question by presenting evidence from a study of the advertisements on 189 payday and title lending storefronts in Houston, Texas and on 30 lender websites. Accepting on their face the views of payday and title lending opponents about what is “good” for low-income borrowers, I find mixed results. On some of the metrics I used, large lenders appear better for low-income borrowers, but on others, small lenders perform better. For instance, more large lenders were in compliance with Texas law at the time of my study, but a larger percentage of big companies charged above average prices for loans. Additionally, larger companies were also more likely to primarily have pictures of racial minorities on their websites while a smaller percentage of larger companies had websites dominated by pictures of females.

In addition to comparing large and small lenders, I present general information about payday and title lending advertising. Overall, I found a low level of compliance with Texas disclosure laws. Additionally, I found that despite consistent claims to the contrary in the literature, there is substantial price differentiation among lenders in Houston. Finally, the pictures on websites are most likely to be females from a minority group, suggesting that perhaps lenders are targeting these audiences.

Keywords: payday lending, auto title lending, alternative financial service providers