Association for Public Policy Analysis & Management

Mental illness and substance use disorders are common chronic health conditions that are prevalent in the United States and can result in negative health events. The most recent report by the Substance Abuse and Mental Health Services Administration suggests that in 2018, approximately 57.7 million people age 18 years and older (22.9 percent of all adults) suffered from mental illness (MH) and/or substance use disorders (SUDs) in the past year. Of these adults, 9.2 million had both MH and SUDs. In terms of negative heath events, statistics from the Centers for Disease Control and Prevention suggest that in 2017, the suicide rate is 14 per 100,000 people and the drug overdose death rate is 21.7 per 100,000 people in the U.S.

In this paper, I study the effects of payday lending bans on suicide, drug poisoning, and alcohol poisoning mortalities. Numerous studies have documented the link between the receipt of disposable income and adverse heath events related to substance use, such as hospitalization and mortality, even when the income is anticipated. Given this relationship, state laws that enhance access to credits, such as payday loans, may have unintended consequences related to health outcomes. Having access to costly credits could lead poorly informed individuals to a cycle of repeated borrowing and result in negative heath consequences, such as suicide attempts and completed suicides. Particularly, those with serious mental illness face unique cognitive barriers that may impede their ability to understand the true cost of payday loans. Moreover, having access to “quick cash”, offered by payday loans, could create the illusion of a “full wallet”. Payday credits allow potential borrowers to over-consume alcohol or psychoactive drugs and may lead to fatal poisonings. Furthermore, the substance deaths could be a form of self-medication against financial strain.

Concerns about payday loans increasing financial distress have led 20 U.S. states and the District of Columbia to prohibit or severely restrict payday lending as of April 2019. A typical payday loan is for $500 with maturity period of two weeks, and payday lenders usually charge an average of $10-$30 per $100 borrowed. For small denomination loans with very short maturities, this fee translates into high annual percentage rates (APR) when expressed as a percent of the original loan amount.

To study this research question, I obtain the restricted-use data from the National Center for Health Statistics Multiple Cause of Death (MCOD) 1999-2016. I leverage plausibly exogenous variation in changes in state laws that banned payday lending and apply difference-in-difference methods. My estimates indicate that after payday lending bans, suicides and fatal drug poisonings decline by 2.00% and 9.14% respectively. I implement a series of alternative specifications, different weighting schemes, different aggregation levels (county vs state), and permutation tests to ensure that my results are not driven by alternative factors. Results from these tests indicate that my main results are broadly robust. My findings suggest that restricting access to payday loans can reduce distress and is associated with a reduction in substance misuse.