Cyrus Dugger

Critique of Fed Study on Predatory Payday Loans Available

From US PIRG Blog:

The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper Defining and Detecting Predatory Lending on payday loans by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York. The Fed paper comes to the preposterous conclusion that while payday lending is “expensive,” it is not “welfare-reducing” and therefore not “predatory.” I had a premonition that this paper would contain such out-of-step findings when the first reference I saw to it was a laudatory pre-publication tease, with excerpts, on a rent-to-own industry website. From the Center for Responsible Lending critique:

# Morgan’s findings are flawed for three key reasons: The analysis contains fundamental errors in its characterization of which states allowed payday lending. Example: Morgan identifies North Carolina—which had at least 500 stores during the analysis period—as a non-payday lending state.
# Key definitions utilized by the research are overly narrow or are contradicted by available data. Example: Morgan, in part, defines vulnerable households as those with unpredictable future income. However, an industry survey notes that households are nearly three times likely to borrower payday loans because of unexpected expenses.
# Morgan’s finding that unlimited payday lending leads to lower prices is flatly contradicted by other research. Example: Researchers from the FDIC, using a national, random sample, found that most payday companies charge the maximum rate permitted by state law. (link)

Posted at 2:51 PM, Jan 31, 2007 in Permalink | Comments (0) | TrackBack (0)