Working Paper

Payday lending: new research and the big question

Abstract: Payday lending is controversial. In the states that allow it, payday lenders make cash loans that are typically for $500 or less that the borrower must repay or renew on his or her next payday. The finance charge for the loan is usually 15 to 20 percent of the amount advanced, so for a typical two-week loan the annual percentage interest rate is about 400 percent. In this article, the author briefly describes the payday lending business and explains why it presents challenging public policy issues. The heart of this article, however, surveys recent research that attempts to answer what the author calls the \"big question,\" one that is fundamental to the public policy dispute: Do payday lenders, on net, exacerbate or relieve customers' financial difficulties?

Keywords: Payday loans; Public policy;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2010

Number: 10-32