More research is needed on payday borrower habits before any regulation curbing payday lending is adopted, say researchers at the Federal Reserve Bank of New York.
The authors examined criticisms of payday lending that are used to justify reform and said that most did not hold up to scrutiny. Research is split, for instance, on whether payday loans help or harm customers, and they appear to have no effect on credit scores.
Research is also divided on what causes people to chronically roll over loans, as 20 percent of borrowers do. The authors cite a recent study that found 61 percent of borrowers accurately predicted when with would be debt free. Those that did not were as likely overestimating as underestimating, suggesting borrowers were not systemically overoptimistic.
“Given the mixed evidence… more research should precede wholesale reforms,” the authors said. They added that while rollover caps might benefit the minority of borrowers prone to behavioral problems, it could harm others who make conscious use of rollovers.