Know More, Borrow Less
By Jessica Silver-GreenbergCan more information influence borrowers to take out less high-cost debt? Apparently, it can, according to an article by the University of Chicago’s Marianne Bertrand and Adair Morse published in the December issue of The Journal of Finance.
In a field experiment at payday loan stores, the study’s authors found that when borrowers are taught to think more broadly about the fees and costs associated with loans, they reduce the volume of loans they take out.
Typically, payday lenders require borrowers to write a check dated two weeks from the date of the loan. When that loan is due, the lender cashes the check, which generally includes the full loan amount, plus any interest or fees.
Payday loans have been controversial since they emerged back in the 1990s. Some consumer advocates have argued that the interest rates, which can exceed 300%, are predatory. Others have said that customers, desperate for short-term cash, don’t fully understand how much they are actually paying.
In response, some states have forced out the lenders or put caps on the amount of interest that can be charged.
The Journal of Finance article takes aim at the assumptions underneath some of the most virulent criticism about payday loans – that the loans prey on the poorest people who don’t fully comprehend the costs of the loans.
The researchers set out to test how much information consumers had and whether greater disclosure of costs cut down on borrowing. They found that the more people know about the long-term costs of a loan, the less they borrow.
Just a little more disclosure about long-term interest rates and fees, the article finds, could cut down on the total volume of borrowing by 11%.
More–and better–information: this is something that is NOT desired by the GOP. They want to eliminate the Dept. of Ed. and decrease (or better, eliminate) funding for public education. The GOP want a surpressed, oppressed class of individuals. Without a class of under educated, poverty stricken individuals, how then would republicans shine in comparision?
Payday Loans And Greenberg - News
By Jessica Silver-Greenberg In a field experiment at payday loan stores, the study's authors found that when borrowers are taught to think more broadly about the fees and costs associated with loans, they reduce the volume of loans they take out.
Day Payday Loans – Account In Financial Time. - Greenberg Writes
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