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Dr. Tom Miller Weighs in on the Importance of Competition, Even In 'Small Dollar' Loan Industry

11-16-16 - Dr. Tom Miller, professor of finance and the Jack R. Lee Chair in Financial Institutions and Consumer Finance, was recently featured by Investors Business Daily, for his commentary article titled, "The Importance of Competition, Even In 'Small Dollar' Loan Industry." Below is an excerpt of the article.

"The small-dollar loan landscape contains many credit products. This landscape is diverse because consumers have diverse needs and a range of credit scores. Understanding the full range of small-dollar loan products and the differences among them is critical for anyone who regulates or advocates along this landscape.

Without an understanding of the different products, it's easy for regulators — however well-intentioned — to make products more expensive for consumers.

For example, there are differences between a lump-sum payday loan and a relatively new product, best described as a "payday installment" loan. With the former, a consumer repays the entire loan at one time; with the second, the consumer repays the loan with equal payments over time. In addition to these two, there is a clearly different product: a traditional installment loan from a finance company.

What makes traditional installment loans different from payday installment loans? The most important difference is that lenders who make traditional installment loans "underwrite" their loans. That is, they consult with consumers and examine the potential borrower's cash inflows and outflows. In this way, traditional installment lenders predict whether borrowers can afford the payments."

Disclaimer: The views and opinions of Dr. Miller do not necessarily reflect those of Mississippi State University, the College of Business, the Department of Finance and Economics, or employees thereof.

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