But the Community Financial Services Association, the largest industry trade association, defends payday lending, pointing out that taking a payday loan can be less expensive and less trouble than either bouncing a check or having one of the overdraft protection loans kick in at the consumer's bank or credit union.

The stakes of the debate have grown steadily higher over time as various states nationwide have sought to restrict or ban payday lending. In May 2004 Georgia eliminated payday lending, as did North Carolina in December 2005. This year, the local government of the District of Columbia effectively eliminated payday lending and a new Federal law prohibited payday loans from being offered to members of the U.S. armed forces.

This was the atmosphere into which Morgan released Payday Holiday: How Households Fare after Payday Credit Bans. The Community Financial Services Association of America jumped on the paper as bolstering its position in the debate.

Morgan looked at some indicators of how consumers in Georgia and North Carolina might be handling times of short credit now that payday lending has been eliminated. He studied patterns of bounced checks at Federal Reserve check processing centers, complaints against lenders and debt collectors filed by households with the Federal Trade Commission, and federal bankruptcy filings.

Morgan identified the monthly complaints data, obtained by the FTC under the Freedom of Information Act, as a new piece of research by Federal Reserve officials. Morgan examined changes in complaints within a state to identify modifications in household well-being, an approach he called “a distinct advantage compared to the ambiguous measures (interest rates and repeat borrowing) emphasized by critics of payday lending.”

“How do we know when credit is so expensive or burdensome that households are better off without it?” Morgan wrote. “The real test is whether household welfare is higher with or without payday credit, and complaints are a measure of welfare.”

Morgan's study found that, on the whole, lower income consumers in Georgia and North Carolina have not done very well without payday lending.

“Relative to other states, households in Georgia bounced more checks after the ban, complained more about lenders and debt collectors, and were more likely to file for bankruptcy under Chapter 7,” Morgan wrote. “The changes are substantial. On average, the Federal Reserve check processing center in Atlanta returned 1.2 million more checks per year after the ban. At $30 per item, depositors paid an extra $36 million per year in bounced check fees after the ban.”

Georgia consumers also complained more about debt collectors after the ban, Morgan said.

“Complaints against debt collectors by Georgians, the state with the highest rate of complaints to begin with, rose 64% compared to before the ban, relative to other states. Preliminary results for North Carolina are very similar. Ancillary tests suggest that the extra problems associated with payday credit bans are not just temporary withdrawal effects,” he wrote.

But the Center For Responsible Lending, a longtime opponent of payday lending affiliated with the $292 million Self Help Credit Union, has critiqued the paper, arguing that the data Morgan used in his research do not support the conclusion that payday lending bans hurt consumers.

CRL pointed out that when Morgan compared things like rates of complaints in Georgia and North Carolina with those of the nation overall, he compared Georgia's and North Carolina's numbers with a pool of states that both allow and ban payday lending.

“Overall, when the authors compare the 'credit problems' for households in

Georgia and North Carolina to the national average for households in the United

States, they fail to note that the national averages include, during the time period reviewed, at least ten states (with one-quarter of the U.S. population) that–like

North Carolina and Georgia–do not authorize payday lending,” CRL wrote in a critique of Morgan's paper.

Similarly, CRL argued that by looking at bounced checks which are moving through the Federal Reserve's regional processing centers also blurred the data. CRL contended the regional processing centers in Atlanta and Charlotte handle checks for other states besides Georgia or North Carolina, including states that allow payday lending.

“For example, more than half of the checks processed at the Charlotte center come from states which allow payday loans. Similarly, during the aftermath of Hurricane Katrina, checks from households in Louisiana (which also allows payday lending) began to be processed in the Atlanta center,” CRL wrote. Because the processing data includes returned checks for states that authorize payday lending, it is incorrect to use this data as representative of “non-authorizing” states like Georgia and North Carolina, CRL argued.

CRL attacked the data suggesting increased FTC complaints after the payday lending ban had more to do with an ongoing increase in these complaints from Georgians which began before payday loans were eliminated. CRL also noted that another jurisdiction with a high number of FTC complaints, Washington D.C., had at that time among the loosest laws regulating payday lending in the country.

“This appears to refute the authors' attempt to develop a cause-effect relationship between the absence of payday lending and FTC complaints,” the Center wrote.

Morgan did not return calls seeking his comment as of press time.

–[email protected]