Plasma Donations Curb Demand for Payday Loans
Research by John Dooley and Emily Gallagher (a research fellow at the St. Louis Fed’s Institute for Economic Equity) examined plasma donation as an alternative to high-cost debt (e.g., payday loans). The authors tracked the opening of 589 plasma centers from 2014 to 2021, which they paired with Experian’s alternative finance credit bureau data to understand how borrowing habits changed in communities surrounding plasma centers. They found that:
- The typical plasma donor was younger than 35, did not hold a bachelor’s degree, earned a lower income and had a lower credit score than most Americans. Donors sold plasma primarily to earn income to cover day-to-day expenses or emergencies.
- When a plasma center opened in a community, there were fewer inquiries to installment or payday lenders. Inquires fell most among young (age 35 or younger) would-be borrowers.
- Four years after a plasma center opened, young people in the area were 13.1% and 15.7% less likely to apply for a payday and installment loan, respectively.
- Similarly, the probability of having a payday loan declined by 18% among young would-be borrowers in the community. That’s an effect on payday loan borrowing roughly equivalent to a $1 increase in the state minimum hourly wage.
- The growing trend of plasma donation raises two concerns. First, more information is needed on the long-term health risks of regularly donating plasma. Second, financially constrained households provide a large portion of the world’s plasma supply.
Read the working paper “Blood Money”
This working paper represents preliminary research that is being circulated for discussion purposes. The views expressed in this paper are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Buildings and storefronts with names like BioLife, Octapharma Plasma or CSL Plasma (to name a few) are showing up in communities across the U.S. These businesses allow people to donate plasma, a component of blood and a key ingredient in medications that treat millions of people for immune disorders and other illnesses. Between 2009 and 2021, the number of plasma collection sites more than tripled, from roughly 300 to 1,000. Donations collected at these sites are critically important: About two-thirds of global plasma supply comes from donors in the U.S. From an international trade perspective, plasma is the eighth largest U.S. export category, encompassing nearly 2% of exports.
All that plasma is coming from a relatively small share of Americans: About 2% to 3% of U.S. households donated plasma in 2019. Unlike in most other countries, donors in the U.S. are often paid—typically about $50 per donation, with rates reaching $200 per donation during severe shortages. There are limits, however; the U.S. Food and Drug Administration restricts individuals to two donations per week. Even with the limit, this income can be helpful, given that nearly a third of adults in the U.S. couldn’t cover an unexpected $400 expense at all or would do so by borrowing money or selling something.
Donating Plasma May Be a Substitute for Payday Loans, Other Expensive Debt
Financially constrained families are more likely to borrow from alternative or nonbank lenders. These lenders provide several loan products (e.g., payday loans, installment loans, auto title loans) that meet the credit needs of consumers who lack access (perhaps due to low credit scores) to more common types of credit, such as a credit card. While these types of loans are more accessible, they come at a higher cost, especially when borrowers must roll over balances into new loans.
Who are typical plasma donors, and why do they donate? Donors tended to be younger, were less educated, earned lower incomes and had lower credit scores relative to other Americans. The majority said that they donated plasma to support their day-to-day expenses and for cash to address emergencies. The average donor donated twice per month. That’s about $100 a month when there isn’t a plasma shortage. Plasma donors and payday loan borrowers have two factors in common: low incomes and low credit scores. Therefore, donating plasma may offer a different source of cash for would-be borrowers.
Arrival of Plasma Centers Reduced the Use of Expensive Debt
Comparing the number of applications for payday and installment loans before and after a plasma center opened helps identify its impact on the community. However, keep in mind that plasma centers do not select their locations randomly. Instead, they tend to open in poorer areas, especially areas with nearby payday lenders. Therefore, the comparison group in this analysis comprises the nearest communities that either have had a plasma center for many years or will get a plasma center in a few years.
The presence of plasma centers—and the income they can provide for people with lower incomes—reduced applications for expensive debt. This was particularly true for young people under age 35. The impact grew over the length of time that the plasma center was open, peaking after four years (which is the end of the sample period). The following figure illustrates the peak size of this effect among young people.
Plasma Centers Affect the Number of Applications for Expensive Debt
As one might expect, fewer applications for credit leads to fewer outstanding loans. For example, within three years of a plasma center opening, nearby young people were 18% less likely to have a payday loan.
Given the cash flow that plasma centers provide to those who need it, how should we think about the overall effect these centers have on debt use in communities? It turns out to be impactful and similar in size to a hike in the minimum wage. For example, among low-income households, a $1 increase in the state minimum wage lowers the probability of taking out a payday loan in the next year by 16%. The income that a plasma center might bring after it opens is comparable to a more widespread pay raise.
Loans with high interest rates can be expensive, especially when borrowers must roll over the balance. In that case, the interest can quickly add up to more than the loan itself. Donating plasma to avoid needing these loans can have a big impact on a family’s financial well-being.
The Plasma Boom Brings Benefits, but Questions of Equity Remain
Given the benefits of plasma donations, what should we make of the industry’s rapid expansion? First, consider that understanding the health risks of frequently donating plasma requires more research. We lack a clear picture partly because medical study participants tend to drop out at high rates. The primary reason that they do so is because of changes in their circumstances, such as time constraints, schedule conflicts or no longer needing the money.
Second, this underscores a broader concern about equity in the industry: Is it fair that the nation’s (and most of the world’s) plasma flows from so few people? As previously noted, these donors typically have lower incomes and lower credit scores. Given higher income, alternative income sources and access to less costly credit, their plasma donations would likely decline. Therefore, a complex ethical dilemma underlies the global flow of lifesaving plasma.