Small-Dollar Credit Products: Do They Help or Harm the Consumer?
By Tim Ranney
September 11, 2013
There are many researchers, advocates, media, regulatory agencies, and credit providers that have long been searching for an answer to that question.
Credit providers claim their products help consumers.
Advocates and the media tend to point to limited statistics and anecdotal examples to claim that small-dollar credit products harm consumers.
Many regulatory agencies have an opinion on whether small-dollar credit products harm consumers, without conclusions based on empirical data. The agencies that are excluded from this claim are the CFPB and a number of researchers at the Federal Reserve.
Most of the interested groups try to find a metric they are comfortable with as a tool to answer the “help or harm” questions. This happens often because the interested parties try to apply their own life standards and personal practices to the non-prime population. For example, if you were to find a non-prime consumer advocate or regulator and ask them if they have ever intentionally overdrawn their bank account, the answer will be “no”. In all likelihood, they cannot fathom being faced with a day-to-day life situation where making a conscious decision to overdraw a bank account is the best alternative available to solve a short-term cash problem.
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