“Hurting the poor”
September 25, 2009 | industry, positive media coverage | Comments (0)That’s what will happen if payday loans are restricted according to today’s must read of the day. A new article in Reason Magazine:
What happens when a rate cap is imposed statewide? Dartmouth economist Jonathan Zinman looked at the payday lending industry in Oregon, where in 2007 an effective cap of $10 per $100 borrowed was imposed along with a minimum borrowing term of 31 days. (In neighboring Washington, by contrast, the standard is $15 per $100 and there is no minimum term.) Oregon’s Consumer and Business Services Department reported 346 licensed payday lending outlets at the end of 2006, six months before the cap kicked in. Seven months after the cap took effect, that number had fallen to 105. In September 2008 it was 82. In a December 2008 working paper, 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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