Payday loans are debt traps and a new study by the Consumer Financial Protection Bureau (CFPB) makes that crystal clear. The CFPB found that four out of five payday loans are renewed within 14 days.
If you’ve taken a payday loan, this may sound familiar. If you haven’t, it’ll help you understand the problem. Turns out the majority of payday loan borrowers end up paying more in fees than they originally borrowed because they renew their loans so many times. 64 percent of borrowers renew at least one loan one or more times.
CFPB Director Richard Cordray said, “We are concerned that too many borrowers slide into the debt traps that payday loans can become. As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them further behind.”
The CFPB looked at patterns in 12 million storefront payday loans over a 12-month period.
HIGHLIGHTS OF PAYDAY LOAN FINDINGS
- More than 80 percent of payday loans are renewed within two weeks.
- Three out of five payday loans are made to borrowers whose fees exceed the amounts borrowed.
- Four out of five payday borrowers either default or renew a payday loan over the course of a year.
- 15 percent of borrowers repay all of their payday debts when due without re-borrowing within 14 days.
- 20 percent default on a loan at some point.
This adds up to an incredibly unfair loan system that takes advantage of people who need relatively small amounts of cash in a hurry. The point of the report is to highlight the big problem and convince legislators on the local and national level to pass laws that protect consumers.
Have a question about taking a payday loan: What’s Wrong With Payday Loans