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Don Morgan has raised more than a few eyebrows with his research on payday loans, "Defining and Detecting Predatory Lending" (PDF 292 KB). Morgan concludes that payday loans can be "welfare enhancing" because they may be the best source of short-term, easily available credit. A payday loan could help a borrower avoid missing a house, utility or car payment, for example.
Consumer advocates counter that payday lenders target the poor and uneducated, charging high fees that translate into annualized interest rates in the hundreds of percent. And while a single payday loan could be of real benefit, some payday borrowers become trapped in a devastating cycle, rolling over their loans until they are financially ruined.
Hear more about the issues in a 14-minute interview with Morgan, an economist in the Research Division of the New York Fed. He was interviewed by Bill Emmons, a senior economist in the St. Louis Fed's Supervisory Policy Analysis unit of the division of Banking Supervision and Regulation. The interview took place April 2, 2007, following a public program in St. Louis on payday lending.
Additional Information: an article on payday lending in the Winter 2007 issue of Journal of Economic Perspectives (PDF 100 KB)