Payday Lending: A Business Model That Encourages Chronic Borrowing." Economic Development Quarterly

The tremendous growth in the demand for very small, short-term loans by credit-constrained households is being largely filled by companies offering payday loans. This article explores the explosive growth of payday lending as a source of short-term consumer credit in low- and moderate-income communities, with a special emphasis on the relationship between industry business practices and the high incidence of per-petual indebtedness in which an increasing number of payday borrowers find them-selves. Empirical analysis confirms two related truths about payday lending. First, there is no denying the large and growing demand for this consumer credit and the rap-idly expanding network of companies willing to supply it. Second, despite its expand-ing customer base and notwithstanding industry denials, the financial performance of the payday loan industry, at least in North Carolina, is significantly enhanced by the successful conversion of more and more occasional users into chronic borrowers