A new study conducted by a Kennesaw State University professor casts doubt on the claims of payday loan critics that extended refinancing of these loans is harmful to consumers’ financial welfare.

The study, which was commissioned by the Consumer Credit Research Foundation and based on the transactions of 37,000 borrowers over a four-year period, also found that borrowers who live in states with fewer refinancing restrictions fare better than those in more heavily regulated states. 

“We have, for the first time, actual scientific data on the outcomes from different rollover patterns to inform an important policy issue,” said Jennifer L. Priestley, professor of applied statistics and data science in Kennesaw State University’s College of Science and Mathematics, and author of the study. “Our research fills a gap in the science of how consumers respond to protracted use of payday loans. All prior regulatory interventions had been based on the presumption of harm, not actual evidence; and we now have real evidence that contradicts those views.”

Key findings from the report include:

• Borrowers who engaged in protracted refinancing (“rollover”) activity had better financial outcomes (measured by changes in credit scores) than consumers whose borrowing was limited to shorter periods.
• Borrowers experienced a net positive financial welfare impact when they faced fewer regulatory restrictions on rollovers. State-law limitations on rollovers appeared to contribute to adverse changes in credit scores for borrowers. 

“This study contributes to a growing body of literature which shows that payday loans may not only fail to harm borrowers, but may actually contribute to an improvement in borrower welfare,” said Priestley. “The absence of adverse outcomes from protracted borrowing must be considered by regulators and policymakers as they mull restrictions on use of short-term credit. Further study of actual consumer outcomes is needed before the imposition of new regulatory rollover restrictions.”

Priestley is also the director of Kennesaw State’s Center for Statistics and Analytical Services, which was established in 2011. The Center provides analytical support to the university, business and government communities of Atlanta and North Georgia. Earlier this year, Kennesaw State was recognized for innovation and real-world use of expanding technology by the editors of ComputerWorld in its annual Data+ Editors’ Choice Awards.

Priestley holds a B.S. in Economics from Georgia Institute of Technology, an MBA from Pennsylvania State University, and a Ph.D. from Georgia State University. She has also held positions at MasterCard, VISA and Accenture.

To review the complete paper, visit: http://ssrn.com/abstract=2534628.