Payday lenders offer identical prices to observably different borrowers. However, we document a $4 per $100 (100 pp APR) “online premium”. Using application and origination data for storefront and online payday loans, we show that observably similar borrowers pay higher prices online, and default more online. Our results suggest adverse selection between online and storefront business models. Among borrowers with similar observable risk, low-risk borrowers are more sensitive to price, and thus select to borrow at the storefront, while online lenders gather a riskier pool of borrowers. We introduce a quantitative model where online and storefront lenders face different cost structures, different credit risk of their borrower pool, and different borrower price sensitivity. We show that differences in credit risk due to adverse selection and higher costs in online lending lead to the online premium.

Residential Property Assessed Clean Energy (PACE) loans allow homeowners to fund investments in green residential projects through their property tax payments. We collect new PACE loan-level data and develop a novel approach to recover households’ home improvement investment decisions from permit descriptions. PACE projects are capitalized into home values, but expansions of the property tax base are partially offset by an uptick in tax delinquency rates among borrowers. Lenders in PACE-enabled counties expand mortgage credit access, indicating improved recovery values despite a PACE lien’s super seniority. Overall, PACE adoption increases local fiscal income while improving climate-proofing of the housing stock.

This study investigates how a ban on payments from third-party product providers to banks and their advisors impacts individual investors. To do so, we exploit a court ruling in Switzerland in 2012 that induced banks to ban distribution fees. We document that, following the ban, banks and their advisors push bank-affiliated mutual funds and bank-affiliated structured products into clients’ portfolios, consistent with banks substituting distribution fees obtained from third parties with income from own products. The inferior characteristics of bank-affiliated products negatively affect portfolio performance. Our results suggest that banning kickbacks is not sufficient to resolve conflicts of interest.