what we know and wish we knew about payday lending · payday lending ronald mann columbia law...
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![Page 1: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/1.jpg)
What We Know and
wish we knew About
Payday Lending
Ronald Mann
Columbia Law School
![Page 2: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/2.jpg)
The Rise of payday
lending
• Rapid growth since “invention” in 1990’s
• 10 million users/year
• Available in storefronts in 2/3 of the States
• 20,000 storefronts nationwide
• Validated (where legal) by narrow usury exception
![Page 3: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/3.jpg)
Market segments
• Large publicly traded chains
• Disciplined by stock markets, reputation, liquidity
• Local “mom and pop” stores
• Closer to customers
• But harder to find/control/regulate
• Internet lenders
• Hardest to find
• Market niche/overlap murky
![Page 4: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/4.jpg)
So customers may
like it, but . . .
• High interest rates
• Fixed 15-18% fee 400% per annum
• > C/C, < overdraft, pawn
Talent-Nelson Amendment (36% cap)
• Repetitive/Frequent Borrowing
• Many customers borrow repetitively
• How to save a large share of a paycheck in one pay period?
• Deceptive
• PEW emphasizes misalignment of frequent borrowing w/ notion of short-term lending
![Page 5: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/5.jpg)
Is this good or bad?
• Harms of higher debt > costs of liquidity constraints?
• Empirical evidence ambiguous, hard to come by
• Limited (legal) alternatives accentuate costs of constraint
• How important are the shadow alternatives??
• Underwriting premise limits spiraling borrowing costs
• Underwritten on the premise of repayment
• Loans stop w/ income interruption/shock
• ≠ credit cards
• How do “rollovers” affect this?
• PLAINLY differs household to household
• What share of “ill-reasoned” borrowers warrants intervention?
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Optimism and
deception
• PEW study suggests misunderstanding/mismarketing
• Relies on evidence of repetitive borrowing
• Implies benefits of rollover restrictions
• Is the inference justified?
• Inherent uncertainty
• Knowledge of lender <<< C/C, overdraft
• Transparency of product >>> C/C, overdraft
• Best evidence is customer expectation
![Page 7: What We Know and wish we knew About Payday Lending · Payday Lending Ronald Mann Columbia Law School . The Rise of payday lending •Rapid growth since “invention” in 1990’s](https://reader035.vdocuments.net/reader035/viewer/2022070109/6044b0734e6744654f7d1dec/html5/thumbnails/7.jpg)
Optimism bias survey
• Survey of 1300 payday customers, administered in
stores
• More than twice as many as PEW study
• Matching expectations of borrowing behavior to actual
patterns
• Preliminary results suggest customers know quite a bit
• Most expect to continue borrowing after first pay period
(mean 36 days)
• Predictions surprisingly accurate
• Almost 60% predict debt clearance w/in one pay period
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Any questions?
(Preferably Ones I Can Answer)