Essays on Consumer Finance: Topics in Auto Title Lending

Abstract

Title lending, in which a borrower uses his car title as collateral for a short-term, high-interest loan, is a growing part of the alternative financial market. These loans provide credit to a group of American who are not well-served by traditional lenders like banks and credit card issuers. Despite their growing prevalence, very little is known about the effect of title loans on customers. In this dissertation, I address several issues in the title lending market. Critics of these loans claim that they have disastrous consequences for borrowers, who are often tricked into borrowing more than they want and can afford to repay. Because of these two factors, critics argue, borrowers continue to borrow more than they want to and are hurt by the existence of title lending. In contrast to these claims, I show that customers who receive a larger loan are not more likely to experience a debt spiral. Additionally, I show that access to title lending leads to fewer, not more, personal bankruptcy filings and has no effect on several measures of financial hardship. Together my results show that the claims of critics are not supported by empirical evidence.