Economic theory suggests that payday lending can either increase or decrease consumer welfare. Consumers can use payday loans to cushion the effects of financial shocks, but payday loans may also increase the chance that consumers will succumb to temptation or cognitive errors and seek instant gratification. Both supporters and critics of payday lending have alleged that the welfare effects of the industry can be substantial and that the legalization of payday lending can even have measurable effects on proxies for financial distress, such as bankruptcy, foreclosure, and property crime. Critics further allege that payday lenders target minority and military communities, making these groups especially vulnerable. If the critics of payday lending are correct, we should see an increase (decrease) in signs of financial distress after the legalization (prohibition) of payday lending, and these changes should be more pronounced in areas with large military or minority populations. This Article uses county-level data to test this theory. The results, like those of the existing literature, are mixed. Bankruptcy filings do not increase after states legalize payday lending, and filings tend to fall in counties with large military communities. This result supports the beneficial view of payday lending, but it may be due to states’ incentives in enacting laws. This Article tests the effect of a change in federal law that should have had a disparate impact according to the prior choice of state law. This second test does not offer clear support for either the beneficial or detrimental view of payday lending.