Nobel prize-winning economist F.A. Hayek once observed, "Popular fallacies in economics frequently express themselves in unfounded prejudices against other occupations." Is this the reason for the contempt and vilification of Payday Lenders. I contend that the media have targeted the industry because it sells papers and ad space in some cases to those they vilify! Payday lenders are easy targets on a slow news day.
My suspicions are that all legislation or regulation really does is close stores further complicating an increasingly challenged job market. The 35% of using payday loans, cash advances, title loans and pawn shops do not have any less of a need for the service. The facts may be that in the current credit crunch this only serves to decrease the availability of credit . Jonathan Zinman of Dartmouth College recently released a study on how Oregon households fared after that state passed a cap on interest rates.
The study observes that most payday lenders left Oregon following the cap resulting in less payday borrowing. The study indicates that demand for such short-term loans did not cease because a law was passed. The study indicates that former payday loan borrowers turned to potentially more costly alternatives. Zinman sums that up with, "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."
In 2007, The Federal Reserve Bank of New York released a study on the effects of payday lending bans in Georgia and North Carolina. The research indicates that reducing the payday credit supply led to increased credit problems. The authors also agreed with Zinman as shown by the statement, "consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check 'protection' sold by credit unions and banks or loans from pawnshops." summing it up best.
So the bottom line is when regulations are put in place the prey of the predatory lenders are just sent to another service that is more expensive! People loose jobs and consumers get the shaft! The problem with the press is they are quick to villify but have no clue that the need doesn't go away many people live paycheck to paycheck!