online cash advance
Online cash advances Don't Lead to Bankruptcy, Clemson Study Shows
The common complaint about online cash advances from pseudo-reputable special interest organizations like theCenter For Responsible Lending (CRL) is that it traps borrowers in a “cycle of debt” that leads toward inevitable bankruptcy. Clearly the subprime mortgage-backed organization did little actual research (their few “studies” are done largely in-house, reflecting complete bias), because numerous independent studies exist that show that their claim against the online cash advance industry is without merit.
The most recent of such independent studies disproving the CRL’s claims is a study by Petru Stoianovici (from The Brattle Group) and Professor Michael Maloney of Clemson University. “Restrictions on Credit: A Public Policy Analysis of Payday Lending” proves that there is “no empirical evidence that payday lending leads to more bankruptcy filings; this finding casts doubt on the ‘cycle of debt’ argument against payday lending.” In addition to their own findings, Stoianovici and Maloney review a large sampling of current academic literature that supports their findings and further suggests that online cash advance critics consistently operate in the realm of hearsay, rather than presenting supported arguments of any consequence.
Good customers and competition
Stoianovici and Maloney use state-level data collected between 1990 and 2006 in their study, with a particular focus on areas with faxless online cash advance storefronts. From state to state, online cash advance regulation varied greatly, from states like Delaware with no restrictions to those where the loans are banned completely (Georgia).
One common thread from state to state in their study is that lenders screened their applicants. Whether or not traditional credit reporting avenues were used, past financial behavior was taken into account. According to Skiba and Tobacman’s 2007 online cash advance study, about 20 percent of applicants are rejected, and the rate of loan default is small (65 percent of what is found with credit cards, per Chessin’s 2005 study that the authors cite). Thus, the argument that lenders prey on helpless consumers is in doubt. These are people who can repay their debts. Borrowers who (according to the study authors) have relatively low probabilities to default are also harmed by online cash advance restrictions, due to higher charges. In general, the authors find that restrictions harm the average loan customer.
Further, Stoianovici, Maloney and numerous researchers make the claim that restricting no fax online cash advances makes it much more difficult for consumers to handle emergency expenses. Adair Morse argues in a 2007 study that the unnecessary restrictions against the loan product presents a barrier for consumers, in the sense that competition is eliminated in the short-term credit market. Prices for what remains are exceedingly high. Where online cash advances remain, according to Morse, consumers benefit.
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