A debate on payday loans at the Federal Reserve Bank of Kansas City on Tuesday stumbled over a simple question: How often do these loans end badly?
Lenders say that 90 percent of loans are repaid when due and that only 3 percent to 5 percent ultimately don't pay off.
The missed repayments and lost fees, however, amount to 20 percent of lenders' revenues, said Darrin Andersen, president of QC Holdings, a payday lender based in Overland Park.
"If they don't pay us back, we're the ones out the money, not them," Andersen said.
Opponents of payday lending contend that borrowers often borrow repeatedly and that many end up in a debt spiral.
Josh Frank, senior researcher at the Center for Responsible Lending, said its research showed that loans ended badly for more than 40 percent of borrowers when post-dated checks they wrote to get loans bounced.
Andersen questioned the study and disagreed that "there is a debt spiral."
The Fed's seminar examined whether restrictions on payday loans could harm consumers.
Kelly Edmiston, the Fed's senior research economist, presented findings based on consumer credit data in counties nationwide that allowed payday loans and those that didn't.
Edmiston's study "suggested" that low-income consumers had less access to credit and all consumers generally had poorer credit where payday lending was banned. It may be they have no alternatives or are making costlier choices such as bouncing checks, exceeding credit-card limits or turning to loan sharks.
"I'm careful to say 'suggest,' because there's lots of room for additional study," he said.
Edmiston said he didn't advocate or object to restrictions. But he said his and others' work showed there were potential consumer harms to weigh when considering whether to restrict payday loans.