Our recent Freakonomics Radio episode “Are Payday Loans Really as Evil as People Say?” explores the arguments for and against payday lending, which offers short-term, high-interest loans, typically marketed to and used by people with low incomes. Payday loans have come under close scrutiny by consumer-advocate groups and politicians, including President Obama, who say these financial products amount to a form of predatory lending that traps borrowers in debt for periods far longer than advertised.
The payday loan industry disagrees. It argues that many borrowers without access to more traditional forms of credit depend on payday loans as a financial lifeline, and that the high interest rates that lenders charge in the form of fees — the industry average is around $15 per $100 borrowed — are essential to covering their costs.
The Consumer Financial Protection Bureau, or CFPB, is currently drafting new, federal regulations that could require lenders to either A) do more to assess whether borrowers will be able to repay their loans, or B) limit the number of times a borrower can renew a loan — what’s known in the industry as a “rollover” — and offer easier repayment terms. Payday lenders argue these new regulations could put them out of business.
Who’s right? To answer questions like these, Freakonomics Radio often turns to academic researchers to provide us with clear-headed, data-driven, unbiased insights into any number of topics, from education and crime to healthcare and sleep. But as we began digging into the academic research on payday loans, we noticed that one institution’s name kept coming up in many papers: the Consumer Credit Research Foundation, or CCRF. Several university researchers either thank CCRF for funding or for providing data on the payday loan industry.
Then, as we continued our reporting, documents were released that shed more light on the subject. A watchdog group in Washington called the Campaign for Accountability, or CfA, had submitted requests in 2015 under the Freedom of Information Act (FOIA) to several state universities with professors who’d either received CCRF funding or who had some contact with CCRF. There were four professors in all, including Jennifer Lewis Priestley at Kennesaw State University in Georgia; Marc Fusaro at Arkansas Tech University; Todd Zywicki at George Mason School of Law (now renamed Antonin Scalia Law School); and Victor Stango at University of California, Davis, who is listed in CCRF’s tax filings as a board member. Those documents show CCRF paid Stango $18,000 in 2013.
What CfA asked for, specifically, was e-mail correspondence between the professors and anyone associated with CCRF and a number of other organizations and individuals associated with the payday loan industry.
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