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date: 07 July 2020

Abstract and Keywords

Payday lending is controversial. In the states that allow it, payday lenders make cash loans that are typically for $500 or less, and the borrower must repay or renew the loan on his or her next payday. The finance charge for the loan is usually 15 to 20 percent of the amount advanced, so for a typical two-week loan the annual percentage interest rate is about 400 percent. This article describes the payday-lending business and explains why it presents challenging public-policy issues. It surveys recent research that attempts to answer the “big question,” one that is fundamental to the public-policy dispute: Do payday lenders, on net, exacerbate or relieve customers' financial difficulties? The article argues that despite research efforts of a talented group of economists, we still don't know the answer to the big question.

Keywords: payday lenders, money lenders, cash loans, public-policy issues

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