DeYOUNG: The payday lender doesn’t collect any other information

Whatever you want to call it – wage deflation, structural unemployment, the absence of good-paying jobs – isn’t that a much bigger problem? And, if so, what’s to be done about that? Next time on Freakonomics Radio, we will continue this conversation by looking at one strange, controversial proposal for making sure that everyone’s got enough money to get by.

EVELYN FORGET: I think a guaranteed annual income could do a very nice job of addressing some of these issues.

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Sources

, Capitol Federal Distinguished Professor in Financial Markets and Institutions, University of Kansas School of Business , Director of State Policy, Center for Responsible Lending , Senior Vice President of Public Affairs, Advance America , Albert E. Cinelli Enterprise Professor of Law, Columbia Law School , Professor of Economics, Dartmouth College , Associate Professor of Economics, Arkansas Tech University

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The payday borrower then writes a check – and this is the key part of the technology – the payday borrower then writes a check for the amount of the loan and postdates it by two weeks. And this becomes the collateral for the loan. So should the payday borrower not pay the loan off in two weeks, the payday lender then deposits the check.

FULMER: It would take the $15 and it would make that fee $1.38 per $100 borrowed. That’s less than 7.5 cents per day. The New York Times can’t sell a newspaper for 7.5 cents a day. And somehow we’re expected to be offering unsecured, relatively, $100 loans for a two-week period for 7.5 cents a day. It just doesn’t make economical sense.

DeYoung, along with three co-authors, recently published an article about payday loans on Liberty Street Economics. That’s a blog run by the Federal Reserve Bank of New York. Another co-author, Donald Morgan, is an assistant vice president at the New York Fed. The article is titled “Reframing the Debate About Payday Lending.”

DeYoung argues that if you focus on the seemingly exorbitant annual interest rates of payday loans, you’re missing the point.

Professor Mann wondered: what kind of a grasp do payday-loan customers have on whether they’ll be able to pay back the loan on time?

ZINMAN: We saw a pretty massive exit from payday lending in Oregon, as measured by the number of outlets that were licensed to make payday loans under the prior regime, and then under the new law.

DUBNER: OK, Bob? For the record did you or any of your three co-authors on this, did any of the related research on the industry, was any of it funded by anyone close to the industry?

If you want to go way deeper into this rabbit hole, check out this article written by Christopher Werth about payday industry connections to academic research.

There’s one more thing I want to add to today’s discussion. The payday-loan industry is, in a lot of ways, an easy target. But the more I think about it, the more it seems like a symptom of a much larger problem, which is this: remember, in order to get a payday loan, you need to have a job and a bank account. So what does it say about an economy in which millions of working people make so little money that they can’t pay their phone bills, that they can’t absorb one hit like a ticket for smoking in public?

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