Vulnerable consumer experiences of (dis)empowerment with consumer protection regulations

• Published date: 01 July 2023
• Author: Mohammed El Hazzouri,Rowan El‐Bialy,Ela Veresiu,Kelley J. Main
• Date: 01 July 2023
• DOI: http://doi.org/10.1111/joca.12533

RESEARCH ARTICLE

Vulnerable consumer experiences of (dis)

empowerment with consumer protection

regulations

Mohammed El Hazzouri

1

| Rowan El-Bialy

2

| Ela Veresiu

2

|

Kelley J. Main

3

1

Faculty of Management, Dalhousie

University, Halifax, Nova Scotia, Canada

2

Schulich School of Business, York

University, Toronto, Ontario, Canada

3

Asper School of Business, University of

Manitoba, Winnipeg, Manitoba, Canada

Correspondence

Mohammed El Hazzouri, Faculty of

Management, Dalhousie University, 6100

University Ave, Halifax, NS B3H 4R2,

Canada.

Email: melhazzouri@dal.ca

Funding information

Social Sciences and Humanities Research

Council of Canada

Abstract

The payday lending industry has been characterized as

predatory, which has led to tougher government inter-

ventions. However, research on how stricter consumer

protection regulations affect actual vulnerable con-

sumers' lived experiences remains seriously underde-

veloped. Following in-depth interviews with financially

excluded and therefore vulnerable payday loan con-

sumers, this study finds that increased payday loan

industry regulations are perceived by consumers as

either empowering, disempowering, or simultaneously

(dis)empowering. Accordingly, practical implications

are developed to help public policy makers navigate

vulnerable consumers' ambivalent relationship with

consumer protection regulations.

KEYWORDS

consumer protection regulations, financial exclusion, payday

loans, vulnerable consumers

1|INTRODUCTION

In the last few decades, there has been significant growth in North America's payday lending

industry (Ramirez, 2020), with the market size in the United States expected to increase by 5.1%

Received: 20 February 2020 Revised: 15 December 2022 Accepted: 7 March 2023

DOI: 10.1111/joca.12533

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

© 2023 The Authors. Journal of Consumer Affairs published by Wiley Periodicals LLC on behalf of American Council on Consumer

Interests.

1066 J Consum Aff. 2023;57:1066–1088.

wileyonlinelibrary.com/journal/joca

in 2022 alone (IBIS World, 2021). Payday loans are named for having to be repaid on the con-

sumer's next payday (Brown et al., 2021). More specifically, they are small, short-term, high-

interest loans targeted at cash-strapped consumers (Anker, 2020). Accordingly, they are used by

consumers to pay for everyday living expenses, such as food, rent, utility bills, and car costs

(Anker, 2020). The rise in the payday lending industry is primarily attributed to financial exclu-

sion, which occurs when vulnerable consumers—“consumers [that are] subject to harm

because their access to and control over resources are restricted in ways that significantly

inhibit their ability to function in the marketplace”(Hill & Sharma, 2020, p. 551)—are unban-

ked or underbanked by mainstream financial institutions (Buckland, 2012; Long, 2020). In

other words, consumer “vulnerability occurs when barriers prohibit control and prevent free-

dom of choice”(Baker et al., 2005, p. 134). By not having their financial needs for basic services

such as cash withdrawal and credit met, financially excluded, and therefore vulnerable, con-

sumers have no choice but to rely on predatory institutions charging much higher interest rates,

like pawnshops and payday lenders (Bone et al., 2014).

Research on vulnerable consumers' engagement with the payday lending industry has typi-

cally focused either on population-level aggregate outcomes or psychological factors influencing

individual financial decision making (Brown & Woodruffe-Burton, 2015). Consequently, con-

sumer researchers are slowly shifting attention to complementary cultural, structural, and emo-

tional factors impacting vulnerable consumers' perceptions and lived experiences of predatory

lending practices primarily encountered in the payday loans market (Bone et al., 2014; Brown

et al., 2021; Brown & Woodruffe-Burton, 2015; Hill & Kozup, 2007; Langely, 2014). Overall,

these studies find that financially excluded, vulnerable consumers feel fearful, rejected, shack-

led, alone, and morally condemned regarding their financial consumption, especially of payday

loans. This focus on actual vulnerability, which is only “understood by listening to and observ-

ing the experiences of the consumer”(Baker et al., 2005, p. 128), is a welcome addition to con-

sumer research. However, “much additional research is required to further the understanding

of consumer vulnerability in the fields of consumer research and public policy”(Hill &

Sharma, 2020, p. 563).

Moreover, consumer loans are a highly unequal service relation of power and domination

that empowers lenders by positioning disempowered borrowers as indebted and solely responsi-

ble for future obligations (Langely, 2014). It is no surprise then that 70% of 826 respondents to a

U.S. survey stated that payday loans should be more regulated (Statista, 2017). Consequently,

various government bodies in the United States and Canada have enacted tougher laws

restricting the payday lending industry (Consumer Financial Protection Bureau, 2022;

Dyer, 2021) in an effort to empower vulnerable consumers. While proponents of such regula-

tions argue that they are needed to protect and provide power to financially vulnerable con-

sumers (Dijkema, 2019), opponents argue that they constitute a financial burden on businesses

that may cause them to cease operations (Wood, 2016). According to these critics, the closure of

payday lenders would have a harmful effect on vulnerable consumers, as it would additionally

limit their access to credit and further intensify their financial exclusion (Southwick, 2018).

However, vulnerable consumers' actual lived experiences and perceptions of increased payday

lending regulations have yet to be explored. At the same time, the role of new government pro-

tection regulations in impacting consumer vulnerability necessitates continuous examination.

Hence, our research question, guided by a focus on actual vulnerability (Baker et al., 2005), con-

cerns how heightened consumer protection regulations affect vulnerable consumers' lived

experiences.

HAZZOURI ET AL.1067