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The impact of payday and title loan business on american citizens

Pew has conducted extensive research on the high-cost small-dollar loan market over the past five years. The findings show that although these products offer quick cash, the unaffordable payments lead consumers to quickly take another loan to cover expenses.

The Consumer Financial Protection Bureau CFPB is expected to release new rules this year that will transform the market for payday, auto title, and other small-dollar loan products. A borrower must have a checking account and income to get a payday loan.

Payday loans are available in 36 stateswith annual percentage rates averaging 391 percent. The other states effectively prohibit these loans by capping rates at a low level or enforcing other laws.

  1. Access to credit remains widely available in Colorado.
  2. These rules would provide a pathway for banks and credit unions to offer customers lower-cost installment loans.
  3. These rules would provide a pathway for banks and credit unions to offer customers lower-cost installment loans. There are currently only 16 states that allow title lending at triple-digit interest rates in the U.

As a result, most borrowers renew or reborrow the loans. This explains why the CFPB found that 80 percent of payday loans are taken out within two weeks of repayment of a previous payday loan.

The payday lending business relies on extended indebtedness: The payday loan market is not price competitive. Most lenders charge the maximum rate allowed under state law. States without rate limits have the highest prices. Access to credit remains widely available in Colorado.

Payday Loan Facts and the CFPB’s Impact

Although half of the payday loan stores closed, the other half now serve twice as many customers at each location, and 91 percent of residents still live within 20 miles of a store. Average borrowers now pay 4 percent of their next paycheck toward the loan instead of 38 percent. Borrowers save money by repaying the loans early, and 75 percent do so. Borrowers overwhelmingly want reform, with 8 in 10 favoring requirements that payments take up only a small amount of each paycheck and that borrowers be given more time to repay their loans.

  1. Average borrowers now pay 4 percent of their next paycheck toward the loan instead of 38 percent. Illinois is one of those states.
  2. Payday loans are available in 36 states , with annual percentage rates averaging 391 percent.
  3. Although half of the payday loan stores closed, the other half now serve twice as many customers at each location, and 91 percent of residents still live within 20 miles of a store. As a result, most borrowers renew or reborrow the loans.

These loans could go on for more than a year at 400 percent interest. The safest loans would be those that follow national credit union guidelines or that limit payments to 5 percent of income, and loan duration to six months.

These rules would provide a pathway for banks and credit unions to offer customers lower-cost installment loans.