What the â€œNorth Carolina Policy Watchâ€ and North Carolina Justice Center don’t mention is that North Carolinians were much worse off when the state banned payday lending there years ago.Â And thereâ€™s a seminal study out of the NY Federal Reserve that proves it.
The study, released in 2007 and revised in 2008, demonstrates clear causation between the elimination of choice and worsening household financial situations.Â The conclusion reached by author Donald Morgan was that, â€œCompared with households in states where payday lending is permitted, 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. North Carolina households have fared about the same. This negative correlationâ€”reduced payday credit supply, increased credit problemsâ€”contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check â€œprotectionâ€ sold by credit unions and banks or loans from pawnshops.â€
More specifically, the study examined three financial problems that payday borrowers often encounter â€“ 1) Returned checks, 2) complaints against lenders and debt collectors, and 3) bankruptcy.
Bounced checks cost borrowers far more than payday loans.Â Every single bounced check incurs $30 in NSF charges and up to $30 in merchant fees, regardless of the size of the check.Â Payday loans in North Carolina cost $15 per hundred, period.Â Â The study found an 8.1% increase in bounced checks in North Carolina, or about 752,000 additional bounced checks each year.Â That translates to a cost to North Carolinians some $45 million in bounced check fees as a result of the ban.
Complaints against debt collectors almost tripled, and Chapter 7 bankruptcy filings increased significantly, as well.
Which leads to the perplexing question:Â Is the North Carolina Justice Center aware of this study?Â If so, why are they ignoring it?Â Why havenâ€™t they publicly challenged it?
And now, having brought it to their attention because Iâ€™m sending this blog post to them in an Email, what will their response be?