Developing a Research Agenda on Small-Dollar Credit and Financial Empowerment

Millions of American households, especially those in the bottom half of the income distribution, use nonbank credit products, such as payday loans, car title loans, and refund anticipation loans, to meet short-term needs. This credit, while small in initial denomination, can add up to significant debt burdens for those who can least afford it. This document briefly summarizes the convening of a meeting held by the U.S. Department of the Treasury with 50 foundation representatives and researchers from academia, government, the nonprofit sector, and industry, held on Thursday, March 4, 2010. The goal of the convening was to identify what research is underway, planned, and needed to inform policymaking that can address the challenges related to meeting the small-dollar credit needs of underserved populations, notably low- and moderate-income individuals. The one-day event included discussions on both the demand for and supply of small-dollar credit. The demand-side discussion began with an overview of current findings. Participants were then asked to contribute insights, examples of current research underway, and future research questions on the topics of who uses small-dollar credit products, why people use them, and whether small-dollar credit use is optimal or rational. During the supply-side discussion, participants were asked to do the same on the topics of who supplies small-dollar credit, what affects supply, and what the emerging trends are among suppliers. Participants shared insights as to what research questions need to be answered so that policy can be made, especially at the federal level, to ensure that credit meets consumer need, is provided fairly and clearly, is viable for credit providers, and is available in appropriate amounts, forms, prices, and venues. The day concluded with a discussion of policy and administrative implications and future directions for research.