Payday lenders prey on the poor, costing Americans billions. Will Washington act?
How could this happen? With payday lending, the entire balance of the loan is due to be paid in two weeks, and the same person who did not have $500 two weeks before can rarely afford to pay the entire loan back plus $100 in fees and interest two weeks later. The borrower simply does not earn enough to live on or meet unexpected expenses, and there’s no raise or bonus in the two-week interim of the loan.
Sometimes the borrower or a family member loses his or her job in that interim two-week period, or other financial hardship arises, often in the form of medical bills. What typically happens is that the consumer renegotiates the loan, which means that the borrower pays that one loan off and then immediately gets a new loan from the lender or gets a loan from another store to cover the cost of paying off the first loan. Then the borrower is stuck with the second loan. Thus a vicious cycle ensues.
Of course, the payday industry's CFSA asserts that 95 percent of borrowers repay loans on time. But the payday lending industry as a whole penalizes a much broader swath of the American people – and economy. The rapidly growing national payday-lending crisis hurts families, businesses, and communities from coast to coast. The North Carolina-based Center for Responsible Lending found that predatory payday lending skinned American families $4.2 billion per year. That is billions taken out of the pockets of Americans – usually those who can least afford it – and the US economy.