Understanding the terms
July 22, 2009 | industry, research | Comments (2)In an in depth article in Slate.com, Professor Ray Fisman examines whether it all boils down to educating consumers:
If payday lenders really do provide a much-needed financial resource, why deprive Ohioans and American servicemen of this service? A recent study by University of Chicago economists Marianne Bertrand and Adaire Morse suggests there might be a middle ground, by allowing payday lenders to continue making loans but requiring them to better explain their long-term financial cost. In a nationwide experiment, Bertrand and Morse found that providing a clear and tangible description of a loan’s cost reduced the number of applicants choosing to take payday loans by as much as 10 percent. Better information, it turns out, may dissuade borrowers vulnerable to the lure of quick cash while maintaining the option of immediate financing for those truly in need.
The whole thing is an interesting read.
Comments»
We need choice and free will. I would support more disclosures, if it meant less legislation. The lenders that are in it for the long haul, want their borrowers to eventually pay back a loan.
For example, create a disclosure that lists the cost of the credit if a loan is rolled over 3 consecutive times, if only the finance charge is paid. Maybe this is more realistic for more borrowers.
Unfortunately, this would just create more ammo for the consumer groups.
How can you be any clearer? This is how much you are borrowing, this is the fee and this is the amount that you payback. Clear?