Payday Loan Restrictions May Hurt Consumers

Recently, a number of States have enacted laws restricting payday loans. For example, Oregon imposed a cap on the amount of fees that a payday lender can charge in Oregon (the cap is $10 per $100 borrowed). Some laws, including those in Oregon, also impose restrictions on the length of the loan. In Oregon, the minimum loan length is 31 days. This effectively reduces the Annual Percentage Rate (or "APR") that payday lenders earn.

Many of these State laws are enacted with the stated intention of helping consumers. But do they really help? Or do they limit borrower's choices, and possibly force borrowers to resort to even more costly alternatives?

A recent study by a Professor at Dartmouth College looks into this question. Here's a summary of the Professor's findings:

The most important finding in the study is that, relative to their Washington counterparts, the Oregon households were far more likely to experience a change for the worse in the key financial outcomes measured by the survey: job status and respondents’ assessments of their recent and future financial situation. These results suggest that restricting access to payday loans harmed Oregon respondents over the term of the study.