Oregon Payday Loan Consumers Worse Off Without Them

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:

Comments ( 9 )
  • Ron Allen says:

    People need to realize banks have been in effort for many years trying to get payday loans stores out of business. After all, do you think anyone could walk in a bank and borrow $300.00 in 30 minutes, not on your life. The thing is bank profit 40% of there income in NSF fees. They dont like it when people have other alternatives to avoid those costs. Oregon didnt remove the industry from there state, they just made it difficult to stay in business with a modest $10 per $100 per 31 days minimum. You need remember this is a non collateral loan, they have a deal of risk. California is 15% and no more than 30 days, making business industry more reasonable for a business owner.
    Bank cards are $50.00 fee or more for getting cash plus what ever interest rate they charge.

  • pesach kremen says:

    The payday loan industry greed has gone far enough. If $10 per $100 per 31 days (120% APR) isn’t enough for them they should go elsewhere (as they may have done) as ripping off the public doesn’t help them. Just because other creditors rip the public off worse doesn’t justify this usury. The answer is to regulate all businesses to make sure the consumers are not taken advantage of.

  • Nathan Randall says:

    Good article and will definitely share with our Daily Dollar subscribers, many of whom are payday loan customers. If banks had to disclose their overdraft fees in the same manner as other lenders, it would be beneficial to customers when comprison shopping between options for fulfilling short-term cash needs. The bank fee increases never seem to end as we wrote about here: http://www.dailydollarnewsletter.com/2009/10/02/banks-hike-fees-again/

  • Emily Winkle says:

    This is very unfortunate. When you look at the costs associated with overdrawn fees, late fees, and harming your credit when you are late on a payment, it’s oftentimes cost effective to use a payday loan to help you out.

    I work with Check ‘n Go (just so there is no misrepresentation) and they have a Cash Management section on their website to educate people on how to manage their money better. Visit https://www.checkngo.com/cash-management-info.aspx?Source=NavBar for more information.

  • payday loans says:

    Doing a payday loan has really helped when I need some extra cash.

  • payday loan says:

    The fact is, a payday cash loan can easily provide you and your family the immediate cash you need for very important expenses as you wait to receive your salary in a few days. And this companys have to charge a high fee because they are takin such a big risk, since it doesnt effect your credit many people might not pay becuase there are few consiquences. So is not so easy for they payday loan industry.

  • Payday Loan says:

    Very interesting. I feel that there are a lot of situations where a payday loan can be beneficial. Your article was informative and helpful.

  • Mike says:

    It will be interesting to see what the effects of anti-payday loan legislation will be on consumers will be in ARK., Ohio, and AZ

  • » Oregon Payday Loan Consumers Worse Off Without Them says:

    […] 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 … Original post […]

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