She suggests the Post Office take on public banking with federally subsidized interest rates, much the way Washington already subsidizes or guarantees online payday FL loans for two things primarily geared toward the middle class: houses and college.
Abstract: “Ten states and the District of Columbia prohibit payday loan stores, and 31 other states have imposed regulatory restraints on their operations, ranging from limits on fees and loan amounts to the number of rollovers and renewals allowed a borrower. Given the importance of payday lenders to significant segments of the population and the wide variation among state regulatory regimes, our paper examines the extent to which the concentration of payday lenders in counties throughout the country is related to the regulatory environment as well as to various financial and demographic factors. The analysis is based on a unique dataset that has been obtained directly from each state’s appropriate regulatory authority.”
Abstract: “Economic theory suggests that payday lending can either increase or decrease consumer welfare. Consumers can use payday loans to cushion the effects of financial shocks, but payday loans may also increase the chance that consumers will succumb to temptation or cognitive errors and seek instant gratification. Both supporters and critics of payday lending have alleged that the welfare effects of the industry can be substantial and that the legalization of payday lending can even have measurable effects on proxies for financial distress, such as bankruptcy, foreclosure, and property crime. Critics further allege that payday lenders target minority and military communities, making these groups especially vulnerable. This article uses county-level data to test this theory. The results, like those of the existing literature, are mixed. Bankruptcy filings do not increase after states legalize payday lending, and filings tend to fall in counties with large military communities. This result supports the beneficial view of payday lending, but it may be due to states’ incentives in enacting laws. This article tests the effect of a change in federal law that should have had a disparate impact according to the prior choice of state law. This second test does not offer clear support for either the beneficial or detrimental view of payday lending.”
Mehrsa Baradaran, a law professor at the University of Georgia, wrote in the Washington Post in that the loans can be ruinous, but they fill a “void created by banks,” which don’t make small loans to the poor because they are not profitable
“For Better and for Worse? Effects of Access to High-Cost Consumer Credit.” Dobridge, Christine L. Finance and Economics Discussion Series: Board of Governors of the Federal Reserve System, 2016.
If the critics of payday lending are correct, we should see an increase (decrease) in signs of financial distress after the legalization (prohibition) of payday lending, and these changes should be more pronounced in areas with large military or minority populations
Abstract: “I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high-cost payday loans over time, I find that payday credit access improves well- being for households in distress by helping them smooth consumption. In periods of temporary financial distress – after extreme weather events like hurricanes and blizzards – I find that payday loan access mitigates declines in spending on food, mortgage payments, and home repairs. In an average period, however, I find that access to payday credit reduces well-being. Loan access reduces spending on nondurable goods overall and reduces housing- and food-related spending particularly. These results highlight the state-dependent nature of the effects of high-cost credit as well as the consumption-smoothing role that it plays for households with limited access to other forms of credit.”