Payday lending: new research and the big question

Payday lending is controversial. In the states that allow it, payday lenders make cash loans that are typically for $500 or less that the borrower must repay or renew 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. In this article, the author briefly describes the payday lending business and explains why it presents challenging public policy issues. The heart of this article, however, surveys recent research that attempts to answer what the author calls the "big question," one that is fundamental to the public policy dispute: Do payday lenders, on net, exacerbate or relieve customers' financial difficulties?Payday loans ; Public policy

The evolution of the Philadelphia Stock Exchange

In "The Evolution of the Philadelphia Stock Exchange," one of our visiting scholars, Swarthmore College professor John Caskey, explains some of the factors that account for the PHLX's long life. Although Caskey focuses on the evolution of the PHLX, he also profiles some of the seismic shifts in U.S. securities markets in recent decades and illuminates the role of the largely overlooked regional stock exchanges.Stock exchanges

Check-cashing outlets in a changing financial system

This paper discusses changes in the financial sector that threaten traditional check-cashing outlets (CCOs). Specifically, the paper focuses on four developments that may radically alter the check-cashing industry over the coming decade: the growing use of electronic payments, the deployment of automated check-cashing machines, the rise of payday lending, and the development of "bank/CCO hybrids."Checks

"Debt, Price Flexibility and Aggregate Stability"

In conventional macroeconomic thought, price flexibility stabilizes thc economy. The more quickly prices fall (or inflation decreases) in a demand-induced recession, the faster output returns to its full-employment level. An alternative tradition, however, suggests that price flexibility can be destabilizing. If a recession reduces expectations of Jitlzre prices, this can raise current real interest rates and dampen aggregate demand. In addition, as actual current prices fall in a recession, real debt burdens rise which can reduce aggregate demand due to financial distress or the response of capital markets. This paper presents simulations from a dynamic macroeconomic model designed to examine the empirical effects of price flexibility. Our results show that, for credible specifications and parameter values7 the destabilizing effects of greater price flexibility can be larger than the conventional stabilizing channels. Therefore, it is possible that greater price flexibility magnifies the severity of economic contractions initiated by negative demand shocks.

Reaching out to the Unbanked

Commissioned for Inclusion in Asset Building: Research and Policy Symposium, an event hosted in September 2000 by the Center for Social Development at Washington University in St. Louis, this paper was developed for publication in Inclusion in the American Dream: Assets, Poverty, and Public Policy (Oxford University Press, 2005). This paper presents a strategy for helping the unbanked to build savings and to improve their credit-risk profiles in order to lower their cost of payment services, eliminate a common source of stress, and gain access to lower-cost mainstream credit