Thursday, March 26, 2009

The curious case of payday loans

The myth:

Critics condemn payday loans calling them ‘predatory debt-traps,’ so much so that many loan seekers consider payday loans taboo. On top of this, policy makers are set to cap these loans in many states. But the million dollar question remains, will a cap on payday loans actually help the financial stability of households to improve?

Georgia and North Carolina

Well, 'certainly not', if you go by the situations prevailing in Georgia and North Carolina. These two are the states which clearly indicate that consideration of payday loans as debt-traps is nothing more than a myth.

The truth:

Georgia and North Carolina are the two states who had banned payday loans in May 2004 and December 2005 respectively. Now going by the myth spread by the critics, household financial stability in these two states are supposed to be better as compared to others where payday loans are still legal. But, unfortunately for the critics that is not true.

Without payday loans, higher bankruptcy

As per the Federal Reserve Bank of New York staff report no. 309 by Donald P. Morgan and Michael R. Strain (published in November 2007 and revised in February 2008), post ban "households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate." The situation in North Carolina is also not very different. ... click here to read the rest of the article titled "The curious case of payday loans"

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