It’s not very unusual for academic research to be funded by grants from for-profit entities, especially in the sciences. What they’re specifically not supposed to do is provide financial support and line-by-line editing to what’s supposed to be independent academic research. Yet that’s what appears to have happened to a paper that seems to prove that high interest rates don’t affect customers’ ability to repay their loans.

Here’s how the actual experiment worked: people taking out payday loans were chosen at random to receive interest-free loans instead. The idea was to see whether the punishingly high interest rates are what makes people take out repeated consecutive payday loans, or whether people just like ’em.

No, really, that’s the industry’s position: people roll their previous payday loans into the next one because they like taking out the loans. Issuing interest-free loans to random people was meant to show that even without the high interest rates, people take out repeated loans because they appreciate the ease and convenience, not because the balance has ballooned too high to pay.

The conclusion of this study says that borrowers in the interest-free group don’t pay their loans back any faster than the control group, which means that it doesn’t matter how much interest they charge. See? Or maybe it’s that people are taking out loans in the first place because they’re broke, and need more paychecks to pay them back either way.

This paper, written by a professor at Arkansas Tech University and an employee of a research firm, didn’t raise any suspicions until the Campaign for Accountability requested and received the lead author’s archived e-mail correspondence with the head of a nonprofit group, the Consumer Credit Research Foundation.

Specifically, the group is named in the paper’s acknowledgements:

The authors thank Consumer Credit Research Foundation for funding the survey expenses associated with this research; the Foundation exercised no control over the research or the editorial content of this paper.

Sounds innocent enough, but the CCRF happens to be funded by Dollar Financial Group, a payday lender. The e-mail correspondence reveals that the chairman of the CCRF went through the entire paper, making edits that went beyond fixing a few typos. A section of the paper that reflected poorly on the industry was removed, and so was a section thanking reviewers and the payday lending company that helped run the study.

“The unnamed payday lenders and the unnamed blind reviewers do not want or need you thanks,” the CCRF’s chairman wrote in an e-mail. “It will actually undermine the lenders’ objectives in participating in the study if you do.”

You don’t say.

CfA Report Reveals Payday Lenders Paid for At Least One Favorable “Academic” Study [Campaign for Accountability] (via Huffington Post)
Do Payday Loans Trap Consumers in a Cycle of Debt? [SSRN]

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