Want scholarly proof that capping the rate on quick payday loans harms families?
I’ve got some for you.
Jonathan Zinman, Assistant Professor of Economics at Dartmouth College, has published a study entitled “Restricting Consumer Credit Access: Household Survey Evidence on Effects Around the Oregon Rate Cap.” His work deals with a representative sample of 400 customers who used quick payday loans taken before and after the rate cap was put in place in Oregon on July 1, 2007.
Results suggest a deterioration in the financial health of Oregon households
By reducing the overall yield for lenders, this regulation drove them out of Oregon. Thus, the issue at hand is whether Oregon families were hurt by the lack of quick payday loans available. Lending figures decreased after the cap was instituted, but another significant story emerged: customers increasingly began to rely upon checking overdraft protection when faced with emergency financial events.
As you may know, overdraft protection is a favorite product of banks and credit unions, as it is frequently a huge revenue generator.
Simply put, customers lose
Here’s what Professor Zinman has to say about his findings:
Like some other studies, these results suggest that access to credit, even if expensive, can help some people make productive investments and help others manage their cash flows through emergencies … there’s more work to do to reconcile these results with findings from other studies that suggest access to expensive credit can exacerbate financial distress.
Overdraft fees are scary. Take at look at what some people have had to deal with, thanks to your friendly neighborhood bank:
Once you look at the data in Zinman’s report, I trust you’ll see that limiting access to quick payday loans is hardly an economic policy solution that helps the people. If nothing else, it drives businesses out of states like Oregon, eliminates scores of jobs and drives customers in the market for short-term loans to less reputable, more expensive options.
This guy is just stating the obvious: running out the payday loan lenders doesn’t actually do anything for the people that use them, and in fact just makes things worse. They’ve already found this out in Georgia and South Carolina. Too much regulation of this industry is leading to bank and credit card monopoly, which is just wrong. Why should there be such a favoritism towards the banking and credit card companies, when they are the ones that got this country into the current credit crunch in the first place?
Yet if it were so obvious, why don’t state governments listen? I agree with you in regards to banks and credit card companies… they have been allowed to monopolize the world of consumer credit, to the detriment of us, and of them… it is only now that old ideas are being shattered. After clean up, what will we be left with – something new?