Online payday loans are a relatively new way for consumers to obtain the short-term cash they need during emergencies. While these loans have been popular with the general public, critics claim that the cost of payday loans in general is excessive and requires low rate caps. These critics believe that low rates will lead to a greater percentage of loans being funded and a lower rate of loan default.
However, in a study entitled “The Effects of Usury Laws: Evidence from the Online Loan Market” by Stanford University’s Oren Rigbi, we see empirical evidence that just the opposite is true. Borrowers who experienced a low cap did not produce the results the critics would have expected.
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