Payday Lending Benefits Communities Stricken By Natural Disaster Says Working Study
PR Newswire
March 24, 2008
Access to Payday Loans Reduced Likelihood of Foreclosure; Increased Community Welfare
WASHINGTON, March 24 / PRNewswire-USNewswire/ - - Communities affected by natural disasters are more resilient and less likely to face foreclosure, says a working study, “Payday Lenders: Heroes or Villains?” by researcher and University of Chicago faculty member, Adair Morse.
The study assesses the impact of payday lenders in California communities struck by natural disasters between the years of 1996-2005 and finds that “access to finance is welfare improving at whatever cost.” Communities with payday lenders showed greater resiliency and the likelihood of foreclosures were reduced by nearly three times.
The study finds that payday lenders provide critical capital to people in disaster-struck communities. Morse found that banks and other forms of credit were no substitute for payday loans, “…banks cannot serve the welfare-enhancing role for individuals in distress that payday lenders serve.”
“My results have important policy implications,” concludes Morse. “If the existence of payday lending is valuable for those facing personal disaster in a way that other financial institutions cannot provide, then regulators should strive to make access to finance easier and more affordable, not ban it,” Morse wrote, “…if payday lending is welfare improving for at least some portion of the population, a move to ban payday lending is ill advised.”
D. Lynn DeVault, president of the Community Financial Services Association of America (CFSA), said, “We hope that legislators look at this study carefully before considering banning an industry which can make such an important difference for people coping with effects of a natural or even personal disasters. This is one of many recent studies that examine payday lending and conclude that banning the product actually harms, rather than helps, consumers.”
Morse assessed the impact of payday lenders in communication which experienced a natural disaster by looking at four measures of community welfare: death rates; drug and alcohol treatment rates; foreclosure rates and birth rates. The existence of payday lenders increased community welfare for all three measures.
Read the full story at: http://faculty.chicagogsb.edu/adair.morse/research/MorsepaydayJune07.pdf
About the Community Financial Services Association of America
The Community Financial Services Association of America (CFSA) is the only national organization dedicated solely to promoting responsible regulation of the payday advance industry and consumer protections through CFSA’s Best Practices. As such, we are committed to working with policymakers, consumer advocates and CFSA member companies to ensure that the payday advance is a safe and viable credit option for consumers.
Visit: http://www.cfsa.net/
SOURCE: Community Financial Services Association of America
