For Immediate Release: January 24, 2007

Media Contact: Lyndsey Medsker 202-296-0263

Payday Loans Not Predatory, According to New Federal Reserve Bank of New York Staff Report WASHINGTON, D.C. – Payday loans are not predatory and may actually enhance the welfare of households, according to a new report issued by staff of the Federal Reserve Bank of New York concluding that payday lending “does not fit our definition of predatory.”

“This report gives clear and objective scholarly evidence that payday loans are not predatory,” Darrin Andersen, president, Community Financial Services Association of America (CFSA), said of the groundbreaking report, Defining and Detecting Predatory Lending, which was authored by Federal Reserve Bank of New York Research Officer Donald P. Morgan. “To the contrary, the report concludes that payday lenders may actually enhance the welfare of households by increasing the supply of credit.”

“By demonstrating that payday loans are not predatory, this report refutes the key criticism leveled against payday lenders,” Andersen said. “The media and critics of the industry should consider the conclusions made in this important study.” Payday advances have helped countless people pay their utility bills, make auto and household repairs and take care of other immediate family needs. “Our industry exists solely because we offer our customers a product that is more desirable than the alternatives,” said Andersen. Pointing out that price does not make payday loans predatory, the report states, “Higher prices are neither necessary nor sufficient to conclude that a certain class of credit is predatory,” Andersen said. “As shown in this report, our customers are capable of looking at their financial options and making educated decisions as to how they can meet unexpected or unbudgeted expenses.”

Defining and Detecting Predatory Lending examined differences in household debt and delinquency across states that allow payday lending and those that do not and compared the change in those differences before and after the advent of payday lending. Particular attention was paid to those households that are generally perceived as more vulnerable to predation (those with income uncertainty or less education).

Key findings of the study:
• “[Credit]...delinquency rates were marginally lower for risky households in states with unlimited payday loans.”

• “Households with uncertain income who live in states with unlimited payday loans are less likely to have missed a debt payment over the previous year…consistent with claims by defenders of payday lending that some households borrow from payday lenders to avoid missing other payments on debt.”

• “Despite their alleged naiveté, payday borrowers appear sophisticated enough to shop for lower prices.”

• “We find somewhat lower payday prices in cities with more payday stores per capita…The problem of high prices may reflect too few payday lenders, rather than too many.”

?? “In the end, the simple fact that payday lenders have triumphed over pawnshops suggests that payday lending raises household welfare by providing a preferable alternative.”

The report can be found at http://www.newyorkfed.org/research/staff_reports/sr273.pdf # # #

The Community Financial Services Association of America (CFSA) is the national trade group of the payday advance industry. Representing 164 member companies with more than half of the payday advance outlets nationally, CFSA promotes laws and regulations that protect consumers and preserve their access to credit options. The association also works on behalf of members to support and encourage responsible industry practices. Membership is contingent upon compliance with CFSA’s mandatory “Best Practices.”