A forthcoming study, “Defining and Detecting Predatory Lending,” by Donald P. Morgan, Research Officer, Federal Reserve Bank of New York, and Samuel G. Hanson, Graduate Student, Harvard Business School, concludes that payday loans are not a “welfare reducing” form of credit. To the contrary, the authors suggest that payday lenders enhance the welfare of households by increasing the supply of credit.
“We define predatory lending as a welfare reducing provision of credit.”
I define it the same way Wikipedia does:
Short-term loans with proportionally high fees, such as Payday loans, credit card late fees, checking account overdraft fees, and Tax Refund Anticipation Loans, where the fee paid for advancing the money for a short period of time works out to an annual interest rate significantly in excess of the market rate for high-risk loans. The originators of such loans dispute that the fees are interest.
The Center for Responsible Lending did a study showing that payday lenders cost American families $4.2 billion every year in predatory fees. This practice creates a Debt Trap. The interesting thing is that these reports are from 2003, so I am sure that the problem is worse now.
You know, we used to have laws against usury. I find it interesting that the most vocal Christian leaders in this country say nothing about this, or other related, issues. Jesus himself drove the money changers (that day's payday lenders) from the temple. Why won't today's Christian leaders do the same for America?
Jesus and the Money Changers by El Greco