Donald P. Morgan
“We find that in states with higher payday loan limits, less educated households and households with uncertain income are less likely to be denied credit, but are not more likely to miss a debt payment. Absent higher delinquency, the extra credit from payday lenders does not fit our definition of predatory.”
Federal Reserve Bank of New York research officer Donald P. Morgan believes that payday loans are not predatory…
He challenges the notion that predatory lending can be defined solely by interest rate:
“While reformers tend to focus on the interest rates charged by alleged predators, our model shows that predators do not always charge more than ordinary lenders. Predators always lend more, however, and the extra debt may push borrowers to the brink of default.”
He also said that payday loans are expensive but increased competition will bring down payday loan fees:
“Nevertheless, it is expensive. On that point, we find somewhat lower payday prices in cities with more payday stores per capita, consistent with the hypothesis that competition limits payday loan prices.”
Donald P. Morgan is a research officer at the Federal Reserve Bank of New York. His articles have been published in academic journals and Federal Reserve publications. He teaches at the Columbia University when needed.
Source: Defining and Detecting Predatory Lending by Donald P. Morgan (Federal Reserve Bank of New York Staff Reports)
With regards to Mr. Morgan’s assertion that predatory lenders lend more, it is interesting to note that credit card companies decreased minimum payments from 5% to 2% so that credit card users could service a larger debt. This was mentioned in our article Are Payday Loan Companies Really Predatory Lenders? To explore differences between payday loans and credit cards, please read Twelve Differences Between Payday Lenders and Credit Card Companies.
Mr. Morgan found that increased competition reduced the price of payday loans. Sadly, most laws aimed at “protecting” consumers end up stifling competition and raising prices. See Five Payday Loan Laws that Hurt Consumers for details.
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