A new survey conducted by Dartmouth College reveals residents are WORSE off without access to payday loan products!
Data on 400 payday loan consumers collected before and after the imposition of an interest-rate cap in Oregon indicates that the payday loan rate cap resulted in a severe downgrade in the financial condition of the Oregon households. These survey results indicate that restricting access to expensive credit harms, rather than helps, consumers.
The study was conducted by Prof. Jonathan Zinman in an effort to evaluate the effects of interest-rate and loan-term restrictions imposed by the State of Oregon in 2007.
Prior to 2007, payday loan companies in Oregon typically charged payday loan borrowers $15 per $100. Effective July 1, 2007, the maximum finance charge that can be imposed on Oregon borrowers is $10 per $100, with a minimum loan term of 31 days. The effective APR earned by lenders was reduced substantially as a result of the new payday loan regulation.
As a result of this new legislation the majority of Oregon payday loan operators left the state. Of course, payday loan lending volume fell dramatically as a result.
The Dartmouth Study revealed payday loan consumers were forced to find alternative sources for temporary financial help that is more expensive than payday loans; overdrafts and late bill payments.
The Dartmouth Study focused on the effects of the Oregon cap rate by comparing changes in key financial components of Oregon household finances before and after the effective date of the cap, using equivalent households in Washington state as a “control.” The study covers changes from June 2007 to December 2007.
The Dartmouth Study revealed that, “relative to their Washington counterparts, the Oregon households were far more likely to experience a change for the worse in the key financial outcomes measured by the survey: job status and respondents’ assessments of their recent and future financial situation”.
The conclusions of the payday loan Dartmouth Study reveal that restricting access to payday loans harmed Oregon respondents over the term of the study.
“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,” Prof. Zinman said. “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.”
The data collection for the study was funded by a grant from Consumer Credit Research Foundation, which did not participate in the analysis of the data or the drafting of the study.
The actual payday loan dartmouth study is available: