Clemson University study supports payday lending
February 4th, 2009
One of the primary arguments used by critics of the payday lending industry is that payday loans push consumers into a “cycle of debt” from which they cannot escape. A recent study from Clemson University refutes this argument, concluding:
“…there is no statistical evidence to support the ‘cycle of debt’ argument often used in passing legislation against payday lending.”
The study goes on to suggest that legislation resulting from incorrect conclusions about payday loans are likely to cause harm to consumers:
“The likely outcome of state restrictions placed on payday lenders is an increase in costs of doing business which will lead to higher prices than otherwise, leaving consumers worse off.”
The study was based state-level data between 1990 and 2006, and utilized two different empirical approaches. It used incidence of bankruptcy filings as a measure of consumers’ welfare.
The report concludes by noting that payday loans, like all loan products, can be abused by consumers. However, these abuses are the exception rather than the rule.
“These results do not imply that there might not be individuals who make mistakes and borrow beyond their means, paying significantly large finance charges relative to principal, but rather that they are likely to be in the tail of the distribution of payday clients, not a symptom of the industry.”
This study adds to a growing body of evidence supporting what over one million of our customers already know: Payday loans can be a great way to make ends meet when lower-cost forms of credit aren’t available. With bank overdraft fees topping $37 billion in 2008, millions of consumers would be better off using payday loans rather than paying more expensive overdraft fees and NSF charges.
