This study by Deloitte, one of Canada’s largest accounting firms, is the one of the most representative studies ever completed on the cost of providing payday loans in a Canadian province. The results were particularly pertinent in BC because of how its provincial government searched for an appropriate rate cap. In a payday loan consultation document, the BC government defined its objective for a maximum allowable rate as “the lowest charge possible that still allows a viable payday lending market.” It seems that Deloitte provides the answer in this study.

This study suggests that “stricter regulation coupled with standard and improved disclosures for consumers will increase competition within the alternative financial sector.” An interesting deduction from the report is how the relationship between disclosure and competition is portrayed. The point made in the report suggests that better rate disclosure leads to easier comparisons by consumers for prices between lenders, which in turn lead to increased price competition. That seems logical to me.

A new study released by Dartmouth College Prof. Jonathan Zinman last week examined the effect of a ban on payday loans on Oregon households. Similar to the 2007 report, Payday Holiday, by the New York Federal Reserve, this study confirms that households in states with a payday lending ban fare worse than where payday loans are allowable.

The study states that borrowers have no choice but to choose “inferior substitutes” in the absence of payday loans, and that “restricting access (to payday loan credit) caused deterioration in the overall financial condition of the Oregon households.”

This short summary of an interesting analysis provides a comparison between the costs of payday loans and bank overdraft charges. Researchers from the Department of Economics, at East Carolina University, conducted this study. The two are directly compared by considering overdraft protection as a type of short-term loan. The findings are very interesting.