Usury prevalent in Christian conservative states

A new study from a University of Utah law professor shows a high correlation between concentrations of pay day lenders, notorious for high interest rates, and the political dominance of Christian conservatives.

Payday lenders, creditors that charge interest rates averaging about 450 percent, are more prevalent in Conservative Christian states, according to a new study coauthored by University of Utah law professor Christopher Peterson. The study, which is based on the most comprehensive database of payday lender locations yet compiled, maps a surprising relationship between populations of Christian conservatives and the proliferation of payday lenders.

“We started this project hoping to find out more about the spatial location of payday lenders and were surprised when a pattern reflecting a correlation with the American Bible Belt and Mormon Mountain West emerged,” said Peterson, who conducted the research and coauthored the article with Steven M. Graves, an associate professor of geography at California State University, Northridge. “The natural hypothesis would be to assume that given Biblical condemnation of usury there would be aggressive regulation and less demand for payday loans in these states, but ironically, the numbers show the opposite is true. It’s sad that states with a pious and honorable religious heritage now disproportionately host predatory lenders.”

Read it all here.

Posted by Ann Fontaine on February 19, 2008 10:00 AM | |
Comments (6)

I hate to sound cynical and jaded, but I'm not surprised. Anybody who finds this hard to fathom might want to read Ronald Sider's book, The Scandal of the Evangelical Conscience

Kendall Sims

Posted by Badger539 [TypeKey Profile Page] | February 19, 2008 10:50 AM

And yet the evidence is the industry isn't particularly profitable:

http://www.economics.ox.ac.uk/members/jeremy.tobacman/papers/profitability.pdf

"[L]enders' firm-level returns differ little from typical financial returns."

From 200 stores in 1990 to 30,000 stores in 2004, the payday loan industry has grown explosively. Four factors seem most important for explaining the expansion. First, payday lenders and their trade organization, the Consumer Financial Services Association, lobbied effectively for safe harbor legislation in many states. This legislation generally relieved registered payday lenders from standard interest rate caps. Second, IT investment and development of the subprime market segment may have been influential: subprime credit scoring helps firms evaluate payday loan applicants. Third, an increasingly large number of consumers during this period have become excluded from the prime (regular) credit market because of improvements in (prime) credit scoring and because of personal bankruptcies. When excluded from ordinary credit, consumers turn to sources like payday loans. Fourth, entry costs are low: as discussed above, capital costs may be less than $50,000 per store, and informational advantages of incumbents are mitigated by Teletrack's presence. More analysis of the industrial organization of the industry, in order to understand pricing behavior and such rapid growth, would be invaluable.

Posted by John B. Chilton [TypeKey Profile Page] | February 19, 2008 11:18 AM

An industry grows 15,000% over 14 years and it's "not particularly profitable"?

Yeah, right.

Kendall Sims

Posted by Badger539 [TypeKey Profile Page] | February 20, 2008 3:12 PM

Yes, right.

Enormous rates of growth are indeed possible when you start from a base near zero; remember this was something akin to loan sharking until it was legalized. Only trouble (for its proponents) is they didn't figure out a way to get regulated so that entry was difficult. That's the classic condition for a competitive market: low barriers to entry.

Posted by John B. Chilton [TypeKey Profile Page] | February 20, 2008 4:51 PM

and your point is what--?

I mean, you seem to be excusing or suggesting that predatory lending is not such a bad thing. I guess you didn't catch the article on it (Payday lenders that prey on the elderly) that was in the Wall Street recently.

Which is it? Is exploiting poor and vulnerable people a shrug or an abomination?

Posted by Kendall Sims [TypeKey Profile Page] | February 21, 2008 10:41 AM

Kendall,

Don't confusing explain how a market works with apologizing for it. Your latest comment seems more appropriate to this post:

http://www.episcopalcafe.com/lead/ethics/usury_flourishing_where_conser.html

where I conclude by asking readers to contemplate whether all the consequences of banning payday loans would be good ones.

Thank you for drawing my attention to the WSJ article here,
http://online.wsj.com/article/SB120277630957260703.html

Posted by John B. Chilton [TypeKey Profile Page] | February 21, 2008 11:14 AM

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