Donald P. Morgan
“To economists, this predator-prey concept of credit seems foreign. If credit is so expensive that lenders are earning abnormal profits (given their risks and costs), why don’t new lenders enter the market to compete rates down to fair levels.”
Federal Reserve Bank of New York research officer Donald P. Morgan disagrees with consumer advocates who claim that payday lenders earn excessive profits…
He also questions the term “unaffordable” credit:
“‘Unaffordable’ credit also sounds peculiar; how can lenders profit if borrowers cannot repay?”
Donald P. Morgan is a research officer at the Federal Reserve Bank of New York who has published articles in academic journals and Federal Reserve publications.
Source: Defining and Detecting Predatory Lending by Donald P. Morgan (Federal Reserve Bank of New York Staff Reports)
Related Quote: Donald P. Morgan
Mr. Morgan asked how can lenders profit if borrowers cannot repay. Unethical lenders know the answer to that question. They try to maximize profits by forcing people to ‘flip’ loans by paying only the interest (without reducing the principle of the debt). They do this in two ways - by not allowing partial payment and lending more money than the borrower can possibly pay back on their next paycheck. For details, please read No Partial Payment in our Payday Loan Pitfalls category and Never Borrow More Than Fifteen Percent in our Tips category. Ethical lenders will always allow partial payment and will never lend you more than 25% of your gross salary. If a payday loan shop tries to give you more than 25% of your salary, run! They are trying to put you on the debt treadmill.
Mr. Morgan also asked why new lenders don’t enter the market to compete rates down to fair levels. One reason may be short-sighted laws. Many consumer “protection” laws deter or prevent new loan shops from opening. See Five Payday Loan Laws that Hurt Consumers for details.
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