When people apply for payday loans they’re already in somewhat dire financial straits. Skiba says that her research finds that the mean credit score for payday-loan applicants is 520. The mean for the overall population is 680. That means that the likelihood of being approved for any other type of loan is small at best. “They've been searching for and denied credit, maxed out on their credit cards, delinquent on secured and unsecured credit, so at the time that they show up at the payday place, it is their best hope for getting credit,” she says. The decision, at that point, is completely rational, just as the Liberty Street essay’s authors suggest. But what happens after borrowers have secured the loan is where things go awry, and whether they were rational to get the loan in the first place seems a bit beside the point. “I kind of disagree with the idea that people are very foresighted about their predicting their behavior,” Skiba says.

As the name indicates, a payday loan is meant to help bridge the time between paydays. The terms are supposed to be short, the equivalent of a pay period or a couple of weeks at most. But borrowers are typically indebted for around three months Skiba says. With fees and incredibly high interest rates, which can range between 300 and 600 percent when annualized, failure to repay within that short time span can make the debt mount quickly.

Skiba’s research shows that the default rate on payday loans is around 30 percent, and a study from the Center for Responsible Lending puts the default range between about 30 and 50 percent as the number of rollovers increase. (The Liberty Street authors don’t mention default rates in their essay.) But these defaults only occur after several interest payments and several efforts to stay current on the debt, evidence, Skiba says, that these borrowers are likely overly optimistic (and thus not particularly rational) about their ability to pay back the loans. (If borrowers knew they were going to default they wouldn’t waste time or money making any payments.) “They don’t know how hard it’s going to be to pay back half of their paycheck plus 15 to 20 percent interest in a matter of days.”

John Caskey, an economics professor at Swarthmore College, is likewise in agreement that the literature about whether these products are ultimately helpful or harmful is mixed. But he doesn’t think that that should stand in the way of improving them. “Unfortunately, it’s a very hard thing to test and get solid answers on, so you have to make your best judgement in terms of regulation,” he says. Caskey argues that part of the problem with the anti-federal-regulation sentiment is that a plan to leave regulation up to individual states leaves too many loopholes for borrowers, lenders, and lobbyists who would try to chip away at any constraints. With a state-by-state approach, an applicant who is denied in their own state because the loan might be too burdensome could simply head to a bordering state where regulations are much more lax, or head online. They’d nevertheless be running the risk of getting stuck in a cycle of bad debt.