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The purpose of this paper is to examine how individual risk preference influences the borrowing of payday loans – a prevalent type of cash loan in the USA with exorbitantly high-interest rates. Additionally, this paper tests how risk preference determines other alternative financial services (AFS), including pawn shops, rent-to-own purchases, title loans, etc.

The author applies Probit and Tobit regressions to test the relationship between individual risk preference and payday borrowing, based on the state-by-state survey data from National Financial Capability Study (NFCS) sponsored by Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

Individuals with higher risk tolerance are more likely to borrow payday loans and other AFS, after controlling for financial situation, financial literacy, overconfidence and demographic features.

This paper is the first to study risk preference as an explanation to the high cost and widely used payday loan services in the United States of America. This study provides evidence that these cash loans are determined by inherent human characteristics. The finding provides new insight for the policymakers and regulators in the consumer debt market.

This study aims to explore stigma in payday borrowing by investigating how the stigma associated with using such a service may spill over and affect other people, entities and relationships beyond the user within a service ecosystem.

In-depth interviews exploring consumers’ lived experiences and stigma were combined with publicly available reports from key stakeholders within the payday loan (PDL) industry to create a qualitative, text-based data set. The transcripts and reports were then analysed following thematic protocols.

Analysis reveals that the stigma associated with using a stigmatised service spills over, affecting not only the borrower but other actors within the service ecosystem. The analysis uncovers three important interactions that spilled over between the actors within the stigmatised service ecosystem (SSE), which can be damaging, enabling or concealed.

This study introduces and explores the concept of “SSEs” and investigates the impact of stigma beyond the dyadic relationships between service providers and users to consider the actors within the wider ecosystem. The findings reframe existing understandings about stigma, as this study finds that stigmatised services can play both a positive (enabling) and a negative (damaging) role within an ecosystem, and this study uncovers the role of stigma concealments and how they can affect relationships and value co-creation among different actors.

This study provides evidence for more robust policies for addressing stigma in different SSEs by mapping the effects of stigma spillover and its effects on the borrower and other actors.

This study contributes to reframing marketing priorities by extending existing work on consumer stigma by showing how the stigma of a PDL may spill over and affect other actors within a service ecosystem. Significantly, the interactions between the actors may have positive as well as negative outcomes.

The purpose of this paper is twofold: to examine the plight of a particular segment of the poor – the working poor – in the USA relative to their exclusion from traditional financial markets and their patronage of the payday loan market; and to propose a framework that offers guidance to law makers in making laws/crafting policies that help the working poor gain better access to credit.

This is a conceptual paper that reviews the literature on the payday loan market and uses its findings to propose a strategy to ameliorate the plight of the working poor.

The study integrates the findings of studies on the payday loan market with theories of corporate social responsibility. Using these findings the authors develop a framework that can guide policy makers in making policies that address the exclusion of the working poor from financial markets.

As a conceptual paper based on theories, the study does not provide empirical validation. The paper develops a framework that could guide policy makers as they consider legislation to address the financial exclusion of the poor, particularly with regard to payday loans.

The paper proposes a policy framework to solve the “debt treadmill” problems of the working poor.

The consequent improvement of the financial conditions of the working poor improves society in general.

To the best of the knowledge, this is the first marketing paper that has proposed a structural framework to address the exclusion of the working poor from the credit markets.

This study aims to gain insight into the motivations behind the decision to use high-cost payday loans by households who possess mainstream credit and to determine whether this behavior has changed over time.

Using data from Statistics Canada’s Surveys of Financial Security, probit models are used to examine the sociodemographic and financial indicators associated with payday loan use.

The analysis uncovers the sociodemographic and financial characteristics of payday loan-user households with access to lower-cost short-term loans. The findings indicate that the likelihood of payday loan use has risen over time. Additional analysis reveals that indicators of financial instability are positively associated with payday loan use among this group.

This research highlights the dichotomy of payday loan users and recommends policymakers tailor solutions to the specific needs of different types of payday loan users.

This research highlights the distinguishing sociodemographic and financial characteristics of payday loan user households and recommends policymakers tailor solutions to the specific needs of different types of payday loan users.

This is the first study, to our knowledge, to focus analysis on payday loan use of those with access to lower-cost short-term credit alternatives in Canada and to include measures of financial instability in the analysis. This research is timely given the current economic environment of high interest rates and high levels of household debt.

This study aims to analyze Payday loans and many similar products which are a relatively new phenomena in the USA, but have been rapidly expanding particularly after the 2008 financial crisis, and have taken a heavy toll on the most vulnerable members of our society.

An extensive literature review of the key US features of payday loans, the regulatory framework and its limitations, the issues and the most recent actions taken to date. The review also includes work done by the European Union, the Organization for Economic Cooperation and Development and the United Nations while discussing how the Internet and extraterritoriality influence the current landscape.

With the advent of globalization and the Internet, the issues associated with payday loans have become harder to tackle, particularly in the USA, given the arcane state regulations used to address the numerous frauds and abuses plaguing the industry. The lack of any international approach combined with increasing cases where questionable actors leverage extraterritoriality, making addressing the issues even more challenging.

This is an all-encompassing review aimed at expanding on existing approaches to properly provide and regulate payday loans and similar alternative sources of credit in this rapidly changing environment; pragmatic domestic and international policy recommendations are listed accordingly.

The purpose of this literature review paper is to define consumer finance, describe the scope of consumer finance and discuss its future research directions.

In this paper, consumer finance is used as a synonym of household finance. Consumers refer to individuals and families. After defining the term “consumer finance,” we conducted a critical review of consumer finance as an interdisciplinary research field in terms of money managing, insuring, borrowing and saving/investing. Future research directions are also discussed.

This paper discusses similarities and differences among several terms such as consumer finance, household finance, personal finance, family finance and behavioral finance. The paper also reviewed key studies on consumer financial behavior around four key financial functions, namely, money management, insurance, loan and saving/investment and several nontraditional topics such as fintech and financial capability/literacy. The paper also introduced several datasets of consumer finance commonly used in the United States and China.

This paper clarified several similar terms related to consumer finance and sorted out the diverse literature of consumer finance in multiple disciplines such as economics, finance and consumer science, which provide a foundation for generating more fruitful research in consumer finance in the future.

Service captivity is described as the experience of constrained choice whereby a consumer has no power and feels unable to exit a service relationship. This study aims to explore how positive service experiences can contribute to service captivity in the alternative financial services (AFS) sector for consumers experiencing financial vulnerability.

A total of 31 interviews were undertaken with Australian consumers of payday loans and/or consumer leases.

The authors reveal a typology of consumers based on their financial vulnerability and their experience with AFS providers. Then they present three themes relating to how the marketing practices of these providers create a positive service experience, and, in doing so, can contribute to service captivity for consumers experiencing financial vulnerability.

The benefits derived from positive service experiences, including accessible solutions, self-esteem, and a sense of control over their financial situation, contribute to the service captivity of some consumers, rendering alternative avenues less attractive.

AFS providers must ensure a socially responsible approach to their marketing practices to minimize potentially harmful outcomes for consumers. However, a systems-level approach is needed to tackle the wider issue of financial precarity. Policymakers need to address the marketplace gaps, regulatory frameworks and social welfare policies that contribute to both vulnerability and captivity.

This research extends the understanding of service captivity by demonstrating how positive service experiences can perpetuate this situation. Further, specific solutions are proposed at each level of the service system to address service captivity in the AFS sector.

This research analyzes borrowers' credit utilization through prepayment behavior in peer-to-peer (P2P) lending. The authors investigate factors influencing the decision to prepay and assess the role of P2P lending as an alternative source of consumer credits.

The authors use individual loan-level data from the LendingClub, one of the largest P2P platforms in the USA. The authors use a Logit model and a sample selection model estimated by the two-stage Heckman method. The empirical analysis considers borrower-specific and loan-specific characteristics as well as macroeconomic factors.

The authors present a number of significant findings that can enhance understanding consumers' financing decisions. The authors offer evidence that borrowers are able to take advantage of cheaper loans offered by P2P lending to better manage credit card balance and consolidate debt. The authors find that borrowers tend to prepay P2P loans quickly when the aggregate cost of borrowing is low, suggesting that P2P lending offers an efficient alternative to obtain credit. This is particularly true for creditworthy borrowers that are able to take advantage of competing sources of finance. The authors' results provide evidence that P2P lending can improve consumers' optimal credit utilization.

P2P lending has grown exponentially and has become a significant credit supplier to consumers and small businesses. While the existing literature mostly focuses on default risks, prepayment has received much less attention. This research fills in the gap and investigates borrowers' prepayment behavior in P2P loans and the role of P2P lending as an alternative source of consumer credits.

The purpose of this paper is to study the effect of credit record overconfidence on the use of alternative financial services (AFSs).

Using data from the 2018 National Financial Capability Study (NFCS), the authors estimate logistic regressions on the use of at least one AFS by adding a credit record confidence variable that captures deviations between self-assessments of credit record management and the number of reported behaviors that would negatively affect aspects of a Fair Isaac Corporation (FICO) score.

The authors find that respondents with credit record overconfidence have over two times higher odds (123.9%) of using AFS than the odds of respondents with financial knowledge overconfidence (46.8%), relative to their reference categories. When compared directly, those with only credit record overconfidence have 32.6% higher odds of using AFS than those with only financial knowledge overconfidence.

The results provide implications for education programs, not only for vulnerable groups at higher risk for AFS use but also for those with cognitive biases, such as credit record overconfidence. Potential solutions include personal financial education that includes debiasing and behavioral techniques for overconfidence.

This paper studies, for the first time, the effect of deviations between actual and perceived credit record management on AFS use.

The purpose of this paper is to study the “underbanked” – those who already possess bank accounts but are patrons of alternative financial services (AFS) providers at the same time.

Linking the FDIC unbanked/underbanked surveys of nationally represented households with FDIC bank information and local MSA demographics, demographic and economic profiles of the underbanked households are examined, together with the determinants of their choice of nonbank financial services.

The author finds that bank fees are associated with the likelihood for households to obtain AFS, especially nonbank credit. Households’ attitudes and experience with banks are important in the choice of getting AFS. Furthermore, most underbanked households used AFS temporarily, partly reflecting rather informed and calculated financial decisions.

The results from this paper provide implications for different types of AFS users. For example, the use of transactional AFS responds to the availability of online or mobile banking; meanwhile, it is also sensitive to branch closure. Users of nonbank credits are likely to be price savvy, and these products serve as valuable alternatives for short-term financing, especially during unfavorable economic situation.

Better understanding of the underbanked could help banks tailor to existing clients’ needs, for instance, providing innovative short-term credit products for those with little or impaired credit history. The study also helps policy makers re-evaluate banking regulations since the Great Recession. As regulations squeezed bank profits in certain areas and forced banks to consolidate, come alongside higher bank fees, potential branch closure and loss of service, which ultimately forced banked individuals to the less regulated alternative providers.

The analysis utilizes a comprehensive set of variables, from household social-economic characteristics to local banking industry characteristics, together with households’ subjective opinions of their banking institutions. The focus on the underbanked brings attention to this underserved population and discusses areas where banks can improve. The study contributes to the understanding of AFS users, draws implications for regulation toward banking and shadow banking.