The Cumulative Costs of Predatory Practices

Spending by young, educated workers has historically been an important component of overall
consumer spending. Also, the act of household formation, which has been depressed in the years
since the recession, boosts homeownership and the general economy. High levels of student
loan debt threaten to temper the historically positive impact college graduates have had on the
nation’s economy.
Payday Lending
Payday loans also create externalities that affect the macroeconomy. One study found that the
money payday borrowers spent on fees and interest would have been more efficiently spread through
the economy if it had remained in the pockets of the borrowers. Payday lending led to a net drain of
nearly $1 billion and over 14,000 jobs from the economy in 2012 (Lohrenz, 2013).
Unknown Costs
In some instances, publicly available data, such as state payday loan regulatory data or Home
Mortgage Disclosure Act data, provide critical information that helps to quantify the cost and
scale of abuses and hold lenders accountable for abusive practices. CRL and others have used these
data to estimate the costs of particular lending abuses—costs that have been cited throughout this
chapter. However, comprehensive public data are not available for all consumer loans. For example,
comprehensive data about the terms and use of consumer installment loans are largely not publicly
available.15 More information would be helpful in improving understanding of how installment loans
work and addressing specific abuses within the market.
In other areas, we are missing key pieces of data that are necessary to fully estimate the scale or scope
of abuses. For example, we do not know how many debts the typical debt-settlement program participant
settles, making it difficult to estimate how many consumers benefit or suffer and by how much
(Parrish & Harnick, 2014). In another case, although we can estimate the impact of predatory auto
lending practices such a “yo-yo” scams and financing negative equity on the total cost of an individual
loan, public data are not available to estimate with confidence how many people these predatory
practice affect or whether specific populations are targeted (Davis, 2012). Policymakers and regulators
at the state and federal level should continue to require data from lenders, analyze data they
collect, and make data available for public review.
15 SEC filings and other sources do provide some important information about such loans.
Center for Responsible Lending 21