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NEW YORK (MainStreet) — Payday loans are the problem child of the credit industry. Rarely used as short-term fixes, they suck borrowers into a cycle of high-interest rate debt and deepening poverty.

Or do they? A recent Federal Reserve Board Finance and Economics Discussion Series working paper found that payday loans may not be as bad as you think. In fact, they may not have much of an impact on borrowers' fiscal well-being at all.

"Overall, I find little to no effect of payday loans on consumers' financial health," wrote working paper author Neil Bhutta. The impact, says Bhutta, is "slightly beneficial, if anything."

Using credit scores as a measure of fiscal health, the paper finds that access to payday loans lowers credit scores just 2.86 points.

On its face, it's a stunning finding. How could loans have such a tiny impact on borrowers' financial welfare? After all, consumers who take out payday loans earn an average of $22,476, and take more than six months on average to pay back debt with interest rates exceeding 300%, according to the federal Consumer Financial Protection Bureau. Aren't the exorbitant interest payments sucking away people's ability to pay their other bills, lowering their scores?

Maybe. But for many people, the alternative to a payday loan could be even worse. Paying for car repairs or medical bills using quick (and expensive) cash may be cheaper than foregoing the loan and losing your job because you don't have transportation or because you're sick, the paper said.

But before you start opposing state legislation that closes down payday lenders, bear in mind: Bhutta's working paper isn't conclusive. And it contradicts earlier research that shows that payday loans have strong negative effects, including doubling borrowers likelihood to file for bankruptcy over the two-year period following the loan, and making it 25% more difficult for families with income between $15,000 and $50,000 to pay their bills. (Some research also shows positive impacts, like reducing the likelihood of foreclosure after a natural disaster).

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The different results, wrote Bhutta, "could reflect differences in the time period studied, outcomes analyzed, or empirical strategies that identify the effect of payday loans off of different marginal borrowers."

Susanna Montezemolo, senior policy researcher at the Center for Responsible Lending, said that the methodology of trying to extrapolate which people were most likely to use payday loans, wasn't as "strong" as using direct data of people who took out loans.

Using credits scores as a gauge of fiscal health may also be problematic, said Nick Bourke, director of small-dollar loans research at The Pew Charitable Trusts. By the time people get payday loans, he said, they're "already at the bottom of the barrel credit score wise, and so it's not really surprising" that their scores don't drop further. Indeed, the average borrower in the study had a credit score which classifies as "bad," its second lowest category, above only "miserable."

Bourke noted that the study also showed that payday borrowers weren't, as some people had previously assumed, the unbanked who have never had access to mainstream credit. Instead, they often had credit cards and other loans, which Bourke said indicated that they were "overloaded" and "struggling with debt." A Pew survey found that if borrowers lost access to a loan payday, they say they would cut back on expenses, borrow from family or friends, and sell or pawn possessions, all options that would allow them to avoid excessive fees.

And payday borrowers often end up taking many of these measures anyway in order to pay off their loans, said Montezemolo, senior policy researcher at the Center for Responsible Lending. "What they end up doing to get out of the payday loan debt is what they could have done at the beginning," without spending money on steep interest payments, she said.

When it comes to the pricey, misleadingly advertised loans, she said, "people are pretty myopic."

--Written by Simone Baribeau for MainStreet