Money for nothing
November 5, 2010 | Montana | Comments (0)Reasononline’s take on the Montana initiative:
Booting payday lenders doesn’t eliminate the need for quick cash, however. And caps like the one Montana just passed may make life much harder for people living on the margins.
Academic research on the subject supports these anecdotal findings. In Oregon, a 2007 law effectively capped rates at $10 per $100 and imposed a minimum borrowing term of one month (as opposed to the more typical one- or two-week loan for $15 per $100). At the end of 2006, six months before the cap kicked in, Oregon’s Consumer and Business Services Department reported 346 licensed payday lenders. Seven months after the cap, that number had fallen to 105. In September 2008 it was 82. In a December 2008 working paper, Dartmouth economist Jonathan Zinman concluded that former payday customers in Oregon ended up using less desirable alternatives such as overdrafts and utility shutdowns, and that “restricting access caused deterioration in the overall financial condition of the Oregon households.” In summary, “restricting access to expensive credit harms consumers.”
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