CFPB Report Shows the Ugly Trap of Payday Loans
A report released today by the Consumer Financial Protection Bureau shows how payday loans trap borrowers in a cycle of debt.
The report showed a shocking statistic: a majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed.
22% of loans are renewed at least six times; 15% of the loans are renewed at least ten times.
Over 80% of payday loans are either rolled over or renewed within 14 days according to the report. Only 15% of payday loan borrowers repay their loans on time without getting another loan within 14 days.
A payday loan is a loan for a relatively low amount of money that is scheduled to be repaid with the next paycheck of the borrower. A July 2012 study by Pew Charitable Trusts found 5.5% of adults nationwide have taken out a payday loan within the past five years.
“The core payday loan product was designed and justified as being expressly intended for short-term emergency use. But our study today again confirms that payday loans are leading many consumers into longer-term, expensive debt burdens,” said CFPB Director Richard Cordray in a statement. “Our research confirms that too many borrowers get caught up in the debt traps these products can become. The stress of having to re-borrow the same dollars after already paying substantial fees is a heavy yoke that impairs a consumer’s financial freedom.”