Abstract
:Since the mid-1990s, the Alternative Financial Services (AFS) industry, or fringe banking, grew by 10 percent annually to over a $100 billion business, serving the financial needs of the 10-20 percent of the U.S. unbanked. The 2009 Consumer Financial Protection Bureau provides immediate federal regulatory power to oversee this industry. The policies developed by this agency depend greatly on their understanding of fringe banking. To aid in this understanding, I draw on the institutional analysis of John R. Commons as updated by A. Allan Schmid in his “situation, structure, performance paradigm” to describe the growth of the payday loan industry in Tennessee. Initially, I describe relevant legal changes. Then, I provide descriptive statistics about the payday lending industry in Tennessee. I conclude with an analysis of the impact of payday lending on consumers and society, and offer policy recommendations.
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