Urban Institute Supports Fostering Competition

Access to Small, Short-Term Loans Critical for Working Families :

"Urban Institute report recommends better disclosures and increased competition to protect consumers. [The report] finds that if payday advances are eliminated they 'could be replaced by alternatives that make families even worse off.'"

This study was released in late July and managed to slip past my radar as I was soaking up the sun during what felt like a very brief summer.

I was not familiar with the Urban Institute until today so for those of you who are in the same boat, here is a bit about them, according to their website:

"The Urban Institute gathers data, conducts research, evaluates programs, offers technical assistance overseas, and educates Americans on social and economic issues — to foster sound public policy and effective government."

When they were founded in 1968, U.S. President Lyndon Johnson had this to say:

"The Urban Institute was founded to... bridge the gulf between the lonely scholar in search of truth and the decision-maker in search of progress."

On the topic of payday loans, the study, titled Enabling Families to Weather Emergencies and Develop, recommends "standard, clear, and timely disclosures of the total loan cost so consumers know their full obligation and can easily compare what various lenders charge for loans," and suggests that "stricter regulation coupled with standard and improved disclosures for consumers will increase competition within the alternative financial sector."

The report goes on to say that "the case for regulating fees or interest rates on small loans is less clear and warrants further research and consideration," and asks "does regulating prices charged make fewer small, short-term loans available? Where will families who need these loans turn if they cannot get them?"

One interesting takeaway from the report, is the relationship that they draw between disclosure and competition. Their stance is that better rate disclosure will make it easier for consumers to compare prices between lenders and, as a result, lead to greater price competition. Makes sense to me.