HANOVER, N.H. — A study partially financed by the payday lending industry has suggested that a cap on payday loan interest rates has actually hurt the consumers that consumer advocates have sought to help.
Jonathan Zinman is an assistant professor of Economics at Dartmouth College. In his study Zinman studied the effects of an interest rate cap on payday loans put into place in Oregon in July of 2007. The cap essentially limited payday lenders in Oregon to charging $10 per $100 lent and set a minimum loan term of 31 days and the majority of payday lenders in the state left.
Zinman's study, which was funded in part by payday lenders through contributions to the Consumer Credit Research Foundation, found that consumers suffered after the departure of payday lenders.
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"I find that the Cap dramatically reduced access to payday loans in Oregon, and that former payday borrowers responded by shifting into incomplete and plausibly inferior substitutes," Zinman wrote. "Most substitution seems to occur through checking account overdrafts of various types and/or late bills. These alternative sources of liquidity can be quite costly in both direct terms (overdraft and late fees) and indirect terms (eventual loss of checking account, criminal charges, utility shutoff)."
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