A recent report by the Federal Reserve Bank of New York has finally brought to light hard evidence to dispel the idea that payday loan providers are engaging in ‘predatory lending’ practices.

The November report (available here) offers the results of a study of households in Georgia and North Carolina, two states which banned payday loans in 2004 and 2005, respectively. Compared with households in other states, those in both Georgia and North Carolina recorded more bounced checks, made more complaints about lenders to the Federal Trade Commission and filed for Chapter 7 bankruptcy at a discernibly higher rate. And they did so at a higher rate than before Payday Loans were banned.

The report’s authors attribute this rise in credit risk and penalties to the decrease in responsible credit options available to sub-prime consumers. In the 2-3 years since payday lending was banned, consumers in these states have faced greater financial challenges with far fewer options.

At the time that these laws were enacted, the Center for Responsible Lending (CRL), a consumer advocacy group, estimated that the law would save consumers $154 million per year in loan fees and interest. What they neglected to take into account is that the fees for bounced checks, late credit card payments and NSF charges far outweighed the fees for responsible payday loans – leading GA and NC residents not to save hundreds of millions of dollars, but instead pay millions more in penalties.

What most financial experts already know – and, unfortunately, more and more consumers and state legislatures are learning the hard way – is that the unwarranted criticism that is incited by so-called ‘consumer advocate groups’ is often based on unfounded, if not downright misleading, evidence.

Companies, such as CashNetUSA, pride themselves on providing a responsible short-term lending option to those in need. This recent report by the Federal Reserve of New York will hopefully go a long way in dispelling much of the slander that is brought upon the industry.