A recent study published in the Journal of Banking and Finance by Dartmouth professor Jonathan Zinman revealed that banning payday loans ended up hurting Oregon households, not helping them.
"Restricting access (to payday loans) caused deterioration in the overall financial condition of Oregon households," Zinman wrote. "Overall the results are consistent with restricted access harming, not helping, consumers on average."
Economists agree: Eliminating payday loans as an option for consumers has disastrous consequences for those who utilize them. We've already seen what happens when other states outlaw these short-term infusions of cash. It remains to be seen whether Colorado will fall into the same trap.
Comparing Oregon, which has placed a rate cap on payday loan that drove three-quarters of the lenders out of business, to Washington, which has no cap, Zinman measured both subjective assessments (i.e., how people felt) and more objective measures like employment status. He found that people fared worse in both regards.
Think of it this way: You're living paycheck to paycheck but have a steady job. One morning, the radiator in your car goes kaput, putting you in a bind. With no savings it will be impossible to get the car repaired. For most Americans, no car means no transportation and no job.
A short-term payday loan, however, gives you access to instant cash allowing you to repair your car and keep commuting to work. Removing that source of credit cuts a lifeline that many families rely upon in crises, a lifeline that, in many cases, keeps them out of the unemployment line.............
