I have written at great length and some rage about the ill-effects of payday loans. What follows is a slightly more restrained scholarly commentary regarding the pros and cons of the payday lending industry where the advantages of these super high interest rate loans comprise a very short list!
Payday lending’s inception was in the mid 1990s. Regulation of
their exploitative practices quickly followed with severe penalties
for predatory lending and ambiguous disclosure of the terms of the loans.
Fourteen states prohibit payday loans. From an economist’s theoretical
point of view, high-interest, short-term, small loans need not be a bad
thing, but practically speaking payday loans have destroyed families.
Payday loan proponents, including Paige Marta Skiba(a law student at Vanderbilt I believe), claim consumers borrow from future good times to help cover current shortfalls allowing the borrower to make “ends meet”. The truth is that “future good times” come to about 1 in 100 payday loan borrowers.
The harsh reality is that credit scores will be destroyed at the payday loan interest rates of 300%–600%. I wonder of Paige has written about the lien payday lenders have on borrower’s paycheck. One has to also posit the possibility payday lenders hire scholarly writers to promote their unfair and predatory lending style giving it the aura of being well-researched and a viable financial option.
While unconditional bans of payday loan enterprises are probably
unjustified, payday loans are still a bad thing for a substantial percentage
of borrowers who avail of them, many of whom default or seek alternate payoff