CFPB details 'traps' in payday loan industryT
he Consumer Financial Protection Bureau released a report on payday lending that reaffirmed previous research on the debt trap consumers often find themselves in when they take out payday loans. CFPB Director Richard Cordray said many borrowers end up "owing as much or more on their very last loan as the entire amount they had borrowed initially."
Building upon its 2013 report Payday Loans and Deposit Advance Products, the CFPB's new report is based on data collected from more than 12 million payday loans over a 12-month period. The CFPB found that:
- Four out of five payday loans are rolled over or renewed within two weeks.
- About half of all loans are made to borrowers who have taken out 10 or more loans in a row.
- Over one in five initial loans result in seven or more additional loans.
- Consumers who renew loans seven times or more pay more in fees than the amount of initial loans.
- Few borrowers succeed in reducing the principal owed between the first loan taken out and the last, with the last loan at least as large as the first one 80 percent of the time.
- For government benefit recipients, one out of five took out loans every single month of the year.
- Payday lenders may engage in unfair or deceptive collection activities toward borrowers, including making false threats, disclosing of debts to third parties and repeatedly phoning borrowers.
"We are concerned that too many borrowers slide into the debt traps that payday loans can become," said Cordray. "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 farther behind."
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