More than 80% of payday loans are rolled over or renewed within 14 days, according to a new CFPB study released on Tuesday.
The study also revealed the majority of all payday loans are made to borrowers who repeatedly renew the loans and pay more in fees than the amount originally borrowed. Payday loans, also known as cash advances or check loans, are typically $500 or less.
The CFPB found that one out of five payday borrowers collecting monthly public benefits are trapped in debt.
“Payday borrowers who fall into this category include elderly Americans or disability recipients receiving Supplemental Security Income and Social Security Disability,” the CFPB said.
The new study examined loans obtained within 14 days of paying off the old payday loans, which it considers to be renewals and part of the same loan sequence.
“More than 80% of borrowers who rolled over loans owed as much or more on the last loan in a loan sequence than the amount they borrowed initially,” the CFPB said.
The CFPB's study was based on data from a 12-month period from more than 12 million storefront payday loans, which builds upon the CFPB report on Payday Loans and Deposit Advance Products from last year. The new study provides a deeper analysis of the data by focusing on repeated borrowing by consumers after they obtain an initial payday loan.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” said CFPB Director Richard 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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