Study Confirms Benefits of Consumer Access to Payday Loans

DENVER, Feb. 7 /PRNewswire/ -- Consumer benefits from access to small dollar, short term payday loans are defined by researchers from George Mason University and Colby College in a study, An Experimental Analysis of the Demand for Payday Loans. They found evidence that:

    -- "Access to payday loans in their environment, all else fixed, increases
       a borrower's probability of financial survival by 31%"
    -- "Payday loans are a means to absorb expenditure shocks and, therefore,
       survive financially"
    -- "Subjects whose demand for payday loans exceeds a certain threshold
       level are at a greater risk"

Cole Kimball, Executive Director of The Online Lenders Alliance (OLA), the nation's largest association of U.S. based companies offering online payday loans, called the newly released study "more evidence of the need for access to small dollar, short term loans." The team of five research academics found that "allowing individuals access to payday loans improves the borrower's ability to survive financially." Researchers took steps beyond traditional empirical analysis in their study of the effects of short term credit products by conducting controlled experiments in a laboratory environment.

"The body of academic work showing the benefits to consumers that responsibly use payday loans continues to grow. The Online Lenders Alliance is encouraged by the continuing stream of studies that scientifically prove the value of our members' services," Kimball noted. "Payday loans are by design meant to help consumers through short term financial emergencies and in no way meant to serve as a long term financial solution. Our member companies recommend that consumers use payday loans responsibly and as recommended."

"OLA member companies offer consumers an alternative to bouncing checks, paying re-connect charges and late fees," said Cole Kimball. "The costs associated with bounced check fees and late charges often far exceed the cost of a short term payday loan which is why consumers demand access to them."

OLA member companies abide by a Code of Best Practices and provide important services to consumers by offering credit counseling resources and financial literacy education services in addition to small short-term online loans.

A complete discussion draft of the study can be found at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1083796.