ALEXANDRIA, VA. -
The study, titled "Defining and Detecting Predatory Lending," by Donald P. Morgan, Research Officer, Federal Reserve Bank of New York, and Samuel G. Hanson, a graduate student at Harvard Business School, concluded payday lenders "enhance the welfare of households by increasing the supply of credit."
The authors noted the difficulty in defining "predatory," and attempted to distinguish predatory lending from "the kind that helps households maintain consumption even as their incomes fluctuate."
"We define predatory lending as a welfare reducing provision of credit," the authors of the study wrote. "Our findings seem mostly inconsistent with the hypothesis that payday lenders prey on, i.e., lower the welfare of, households with uncertain income or households with less education. On the whole, our results seem consistent with the hypothesis that payday lending represents a legitimate increase in the supply of credit, not a contrived increase in credit demand. Credit delinquency rates are not higher for households in states with higher payday loan limits."
According to the study, households with uncertain income who live in states with unlimited payday loans are less likely to have missed a debt payment over the previous year, "consistent with claims by defenders of payday lending that some households borrow from payday lenders to avoid missing other payments." the authors said.
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