Proponents' Stance

Although, some view payday loans as predatory or even loan sharking that target low-income clients, proponents are adamant that payday loans provide a service that is not available from many national banks. Many banks do not offer small, short-term loans and these payday loans fill a niche in the economy. Many cities across the United States are implementing ordinances on the manner in which payday loan centers conduct business. Economic studies show that consumer credit, even at very high rates of interest, is generally welfare-enhancing.

A staff report released by the Federal Reserve Bank of New York concluded that payday loan should not be categorized as "predatory" since they may improve household welfare. The report, "Defining and Detecting Predatory Lending," reads that "if payday lenders raise household welfare by relaxing credit constraints, anti-predatory legislation may lower it." The author of the report, Donald P. Morgan, defined predatory lending as "a welfare reducing provision of credit." Results of the report indicated that payday loans may actually do the opposite by improving the welfare of the consumer.