Miami Herald: Payday Loans Trap You in Debt
Payday lenders pocket $4.2 billion in excessive fees each year from Americans who seek a two-week loan and end up trapped in debt, according to a report by the Center for Responsible Lending and a recent article in The Miami Herald.
The study calculates the cost of predatory payday lending state-by-state and also estimates that borrowers save $1.4 billion in states that enforce reasonable interest rate caps.
Julian Bond, chairman of the NAACP, said his organization is committed to fighting abusive financial practices such as no faxing payday loans.
”This is hard-earned cash being siphoned out of the wallets of working people,” Bond said. It’s “much-needed monthly benefits being squeezed out of retired and disabled folks.”
Cash loans are marketed as short-term cash advances on the borrower’s next paycheck. But previous research has found that the industry depends on repeat business or ”flipped” loans.
In fact, 90 cents of every dollar payday lenders make comes from borrowers who flip into loan renewals five or more times per year. The new report finds the average payday borrower pays back $793 for a $325 loan!
Some states don’t allow the savings account payday loan practice. They are Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. All hold their lenders to consumer loan laws, which usually include a double-digit interest rate cap.
Congress recently adopted this approach when the Pentagon sought protections for troops from online payday advance lenders. The Defense Authorization bill President Bush signed in September included a 36-percent interest rate cap on such loans to military families.