Almost everyone, at one time or another, seeks to borrow money for different reasons. Most of us, however, do not seek to pay a 460 percent interest to use that cash.
In "Where Banks Are Few, Payday Lenders Thrive," the authors reveal that in the U.S. today, 12 million people borrow nearly $50 billion a year through payday loans. The annual percentage rates on these loans are typically much higher than those of other loan types.
This paper analyzes the correlation between the existence of banks and payday lenders in a given location, and explores whether banks and payday lenders strategically choose storefront locations based on demographic and economic characteristics.
"Beyond making more detailed data available, policymakers can also make an effort to better ensure that borrowers are more aware of the actual rates they are paying when taking out a payday loan," said report co-author Priscilla Hamilton, Research Analyst at the Milken Institute.
Given that the nation is now recovering from a severe recession, authors also provide recommendations for policymakers and financial institutions to create greater access to loans at more affordable rates.