People Using Payday Loans More Likely To Report Poor Health, Study Finds | US News


People who borrow from short-term, high-interest lenders such as payday loan companies are 38% more likely to rate their health as poor or fair, according to a new report.

The research, conducted by a group of doctoral students at the University of Washington and published in the journal Health Affairs, is one of the first empirical analyzes of the health effects of “fringe” banking products.

“Much of the previous research on the subject has focused exclusively on the financial consequences of lending, whether borrowers are better off or worse off financially,” said Jerzy Eisenberg-Guyot, lead author of the study. “We thought that was too restrictive a way of looking at it.”

Other research has looked at the deleterious effects of debt on general health, but not the different types of debt, Eisenberg-Guyot said. For example, studies had not examined the health effects of using payday loans compared to conventional mortgages.

The University of Washington study looked at the so-called marginal banking sector, which includes all kinds of short-term, high-interest loans, including payday loans, pawn shops, and auto title loans.

Eisenberg-Guyot and his coauthors performed statistical analysis of Current Population Survey data, collected by the US Census Bureau, and a supplemental Federal Deposit Insurance Corporation survey conducted between 2011 and 2015.

Participants were asked if they “would say your health is in general” or “poor / fair” or “good / very good / excellent”. Those who responded were then compared to groups with similar backgrounds, as poor, less educated, and minority Americans are more likely to report poorer overall health.

People who reported poor health in the three months prior to using a marginal banking product were excluded; the same was true for people with an existing disability.

The researchers found that using fringe banking products and being “unbanked” (without a formal bank account) were “associated with poorer self-rated health”.

“This research adds to the growing evidence that links specific types of household debt and financial exclusion to poor health,” the researchers said.

One of the weaknesses of the study, they said, is the possibility of “reverse causation” – people in poor health are more likely to use fringe banking products.

The payday loan industry and other fringe banking products barely existed three decades ago, before politicians began to gradually deregulate the short-term lending industry and community banks began to disappear.

Payday loans have exploded over the past 20 years, according to the new study. In 1998, the industry provided $ 10 billion in short-term loans. In 2011, she loaned $ 48 billion. Interest on short-term loans, typically used by low-income people for essentials like rent, food or car repairs, can be as high as 600% per year.

Some former clients have described the industry as a “legalized loan shark”; payday lenders in particular have come under scrutiny by the Consumer Financial Protection Bureau under the Obama administration.

However, after industry lobbying, the Trump administration halted the investigations. A harsh consumer protection critic Mick Mulvaney now heads the agency.

“Future research should explore more in depth how America’s two-tier financial system – one for the rich and one for the poor – affects health and worsens health inequalities,” the researchers said.

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