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Regulators prepare rules on payday loans to shield borrowers | New …

WASHINGTON (AP)—Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees—often an annual percentage rate of 300 percent or more—may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

[…]

Tighter payday loan rules intended to shield debtors | TribLIVE

WASHINGTON — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau said state laws governing the $46 billion payday lending industry often fall short and that fuller disclosures of the interest and fees — often an annual percentage rate of 300 percent or more — may be needed.

Details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express, accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

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[…]

Federal regulators plan payday loan rules to protect borrowers

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A payday loans sign in the window of Speedy Cash, London, December 25, 2013. For the first time, the Consumer Financial Protection Bureau plans to regulate payday loans using authority it was given under the Dodd-Frank law. Photo by Suzanne Plunkett/Reuters.

WASHINGTON — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees – often an annual percentage rate of 300 percent or more – may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation. The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.

Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.

“It was a nightmare of going around and around,” said Brooks, who believes that lenders could do more to help borrowers understand the fees or offer lower-cost installment payments.

Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually. By comparison, annual percentage rates on credit cards can range from about 12 percent to 30 percent.

Members of Congress also are looking at payday loans.

Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, plans legislation that would allow Americans to receive an early refund of a portion of their earned income tax credit as an alternative to a payday loan.

Sen. Elizabeth Warren, D-Mass., wants the U.S. Postal Service to offer check-cashing and low-cost small loans. The idea is opposed by many banks and seems unlikely to advance in a Republican-controlled Congress.

[…]

Regulators prepare rules on payday loans to shield borrowers

WASHINGTON (AP) — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees — often an annual percentage rate of 300 percent or more — may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation. The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.

Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.

“It was a nightmare of going around and around,” said Brooks, who believes that lenders could do more to help borrowers understand the fees or offer lower-cost installment payments.

Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually. By comparison, annual percentage rates on credit cards can range from about 12 percent to 30 percent.

Members of Congress also are looking at payday loans.

Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, plans legislation that would allow Americans to receive an early refund of a portion of their earned income tax credit as an alternative to a payday loan.

Sen. Elizabeth Warren, D-Mass., wants the U.S. Postal Service to offer check-cashing and low-cost small loans. The idea is opposed by many banks and seems unlikely to advance in a Republican-controlled Congress.

___

Follow Hope Yen on Twitter at http://twitter.com/hopeyen1

LoansInvesting Educationpayday loansannual percentage rate […]

Bank's loan sale doesn't end risk

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Posted: Friday, January 2, 2015, 9:58 AM

Despite the retirement of founder Betsy Z. Cohen and a Dec. 31 deal to sell off one-quarter of the Cohen family-controlled loan and cash management company’s $1.1 billion in largely Philadelphia-area business and consumer loans, The Bancorp still has a ways to go before the Wilmington and Philadelphia-based company will have a positive new story for investors, writes analyst Frank Schiraldi in a report to clients at Sandler O’Neill + Partners this morning.

Schiraldi notes the company sold its $268 million “nonperforming/sub-performing” loan book, which had already been marked down by $54 million (plus another $4 milllion during the fourth quarter) to around $210 million, for $194 million in 10-year senior and subordinated notes at around 2.2%, plus $16 million in (probably) cash.

But “unfortunately, the sale does not result in a ‘clean break,'” Schiraldi writes. “We were disappointed” to see that Bancorp is still exposed to losses from the portfolio — because the buyer “is a newly-formed entity, Walnut Street, in which the bank owns a 49% stake.” Plus, most of the proceeds of the sale were paid for in Walnut Street debt, which is backed by those same lower-quality Bancorp loans and collateral (the Philadelphia-area properties whose owners used them to secure their loans from Bancorp).

“We would have thought that minimizing future exposure to this book would have been a priority,” but maybe Bancorp could find no other buyers, Schiraldi adds. Given the small bounce the stock enjoyed on Cohen’s departure announcement (after a sharp decline since last winter), Schiraldi expects shares may now drop again, at least in the short term. The analyst expects the bank will report a fourth-quarter loss, and will keep the stock rated “hold” at least until Bancorp gives investors “greater clarity” on how it will boost profits from its remaining business lines.

[…]

How to avoid overpaying for your car loan

Americans are shouldering a record amount of auto loan debt, and many are taking on bad loans—either because they don’t see the red flags or they feel they don’t have another option.

Americans owed a record $839.1 billion in outstanding auto loan balances at the end of the second quarter of this year, compared with $751.1 billion the same time a year ago, according to Experian Automotive. The sheer number of loans also grew to 61.6 million from 57.8 million a year earlier.

But while consumers tend to be educated about how to research the fair price of a car, many remain clueless about how to get the best auto loan, said Ira Rheingold, executive director of the National Association of Consumer Advocates.

“People don’t realize dealers make more of their profit these days on the financing,” he said. “You really need to shop for the loan before you shop for the car.”

Read MoreNew study says most can’t afford used cars

One approach recommended by financial advisors is the 20/4/10 rule: put down at least 20 percent in cash or trade-in value; keep the life of your loan to four years or less; and keep your monthly payment below 10 percent of your monthly income.

But before you even set foot in a dealership, make sure you know your credit score and try to obtain financing from a bank or credit union. (The Federal Trade Commission provides an extensive guide to understanding vehicle financing, which includes worksheets to help consumers determine how much they can afford to borrow and what to consider when choosing a creditor.)

Without a loan in hand, you’re more likely to get stuck with an auto loan markup, which allows the auto seller to inflate the rate offered by a third-party lender. “This practice alone adds $25.8 billion in hidden interest over the lives of many car loans,” according to the Center for Responsible Lending.

“Yo-yo” sales can also trap a buyer. That’s when a dealership calls after someone has already signed the paperwork and taken the car home to announce something was wrong with the “conditional” sale. Sometimes the dealer will demand the car be returned and the buyer sign a more expensive loan or face consequences.

“Usually that’s a lie,” Rheingold said.

If a consumer gets a call from an auto dealer saying the contract wasn’t really a contract, they should report the incident to the state attorney general and FTC. But the best bet may be to just return the car and go somewhere else, said Rheingold.

Other red flags to look for include fees you don’t understand or charges for items you didn’t agree to like credit insurance.

Read More5 tips to get the best deal on a car loan

As the overall number of auto loans rise, lenders’ tactics are coming under increased scrutiny. The Consumer Financial Protection Bureau, a watchdog agency set up as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is seeking to extend its supervisory role to nonbank auto lenders (so-called captive lenders) like Toyota FS, Ford MCC and Honda Finance. The proposed plan, which was announced Sept. 17, is currently in a public comment period.

[…]

CFPB Moves Against Payday Loan Industry, Orders ACE Cash Express To Pay $10 Million

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In another sign that the payday loan industry is increasingly under siege, the CFPB today reached a settlement with one of the nation’s largest payday lenders for $10 million over its illegal debt collection tactics.

The lender, ACE ACE Cash Express, “used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt,” said CFPB Director Richard Cordray. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”

For example, the CFPB says consumers faced the threat of extra fees, being reported to credit reporting agencies and criminal prosecution if they didn’t make payments. Some collectors repeatedly called consumers, their offices and even their relatives, disclosing information about their loans.

An ACE Cash Express storefront in North Carolina. (Sonny Hedgecock/AP)

A graphic pulled from the ACE Cash Express training manual shows how new employees were taught to contact the customer after he or she “exhausts the cash and does not have the ability to pay.” Employees were instructed to “create a sense of urgency” when calling delinquent borrowers.

Of the $10 million total that is owed, $5 million will be paid to consumers in the form of refunds and $5 million will be paid as a penalty to the CFPB. ACE Cash Express is also ordered to end illegal debt collection threats and harassment and stop pressuring borrowers into taking out repeated loans.

The payday loan industry is estimated to make over $3 billion a year.

A statement from ACE Cash Express says the allegations relate to practices prior to March 2012 and they have cooperated with the CFPB to implement recommended changes. They offer payday loans online and in storefronts across 36 states and DC.

Payday loans, which provide borrowers with quick access to cash, are widely criticized for their ultra-high interest rates, short repayment periods and predatory practices.

“Payday loans are designed to create a debt trap,” says Diane Standaert, senior policy counsel at the Center for Responsible Lending. “They are marketed as a quick financial fix, but in reality leave people in a worse financial position than when they started.”

The CFPB, which was the first federal regulator to oversee the payday loan industry starting in 2012, began collecting consumer complaints about payday loans last fall and is in the “late stages” of working on rules for the industry. This is the second enforcement action it has taken against a big payday lender, and the first time it has used the Dodd-Frank provision against abusive practices that take “unreasonable advantage” of consumers.

States like Illinois have recently taken action against payday lenders, and a federal probe dubbed “Operation Choke Point” has gone after them too. A recent report from KPMG’s financial services regulatory practice warns that payday lenders will face “heightened regulatory scrutiny” at both the state and federal level.

Move up http://i.forbesimg.com tMove down Why It Could Pay To Get A Credit Card From Your Regular Bank Lauren Gensler Forbes Staff Public Pensions Finance Payday Lenders Edward “Ted” Siedle Contributor […]

Low Cash-Out Share, Shorter Terms Point to Equity Build-Up

MCLEAN, VA–(Marketwired – Apr 30, 2014) – Freddie Mac (OTCQB: FMCC) today released the results of its first quarter 2014 quarterly refinance analysis, showing that borrowers will save on net more than $1 billion in interest payments over the coming year as they continue to shorten their payment terms and build equity in their homes.

News Facts

Of borrowers who refinanced during the first quarter of 2014, 39 percent shortened their loan term, up slightly from the previous quarter and the highest since 1992. In the first quarter, an estimated $6.5 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages, largely unchanged from the previous quarter and $2 billion less than the same time one year ago. The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. In aggregate, U.S. home equity grew by an estimated $2.1 trillion during 2013, according to the Federal Reserve Board’s Flow of Funds data. Much of this gain was attributable to home value gains. The average mortgage interest rate reduction in the first quarter was about 1.4 percentage points — or a savings of about 24 percent. On a $200,000 loan, that translates into interest savings of about $2,800 during the next 12 months. Homeowners who refinanced through HARP during the first quarter of 2014 benefited from an average mortgage interest rate reduction of 1.6 percentage points and will save an average of $3,200 in interest payments during the first 12 months, or about $260 every month. About 83 percent of those who refinanced their first-lien home mortgage maintained approximately the same loan amount or lowered their principal balance by paying in additional money at the closing table. The peak was 88 percent during the second quarter of 2012. The median age of the original loan outstanding before refinance increased to 7.3 years during the first quarter, the most since the analysis began in 1985.

Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist:

“Roughly 17 percent of borrowers who refinanced in the first quarter chose to extract home equity versus 14 percent from the same time last year. This is well below the peak cash-out share of 89 percent the market experienced in the third quarter of 2006. However, even with the slight increase in the cash-out share, it’s still $2 billion less compared to first quarter of last year simply because the refinance share of originations continues to plummet.”

About the Quarterly Refinance Report
These estimates come from a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these refinances. The analysis also does not track loans paid off in entirety, with no new loan placed. Some loan products, such as 1-year ARMs and balloons, are based on a small number of transactions.

With the report for the first quarter of 2013, the calculation of the principal balance at payoff of the previous loan has been modified. Previously, the payoff balance was calculated as the amount due based on the loan’s amortization schedule, and “cash-in” was defined as a new loan amount that was less than the scheduled amortization amount. Data for 1994 to current have been recalculated using the actual payoff amount of the old loan, with an allowance for rounding down the principal at refinance; thus, from 1994 to present, “cash-in” is defined as a new loan amount that is at least $1,000 less than the payoff principal balance of the old loan. Data are presented under both methods for 1994 for comparison purposes.

First Quarter 2014 Refinance Statistics

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four home borrowers and is one of the largest sources of financing for multifamily housing. Additional information is available at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

LoansInvesting EducationFreddie Mac […]

Rep. Ferri's Bill Would Lower Interest Allowed on Payday Loans in …

Rhode Island lawmakers are considering a bill that would revise existing rules on payday loans. The short-term loans are limited to $500, must be paid back in two weeks, and carry interest rates as steep as 280 percent. The proposal, sponsored by Rep. Frank Ferri (D-Warwick), would cap interest at 36 percent and force payday lenders to follow the same rules as other lenders. The House Finance Committee held the measure for further study.

Ferri is sponsoring the bill for the fourth year in a row. It has gained support from groups such as the Rhode Island AFL-CIO, the Rhode Island Coalition for the Homeless, AARP Rhode Island, and the Rhode Island Payday Lending Coalition. It also has received push-back, however, from payday loan providers that operate in the state.

Rhode Island is one of about 35 states that allow some form of payday lending. State law currently lets lenders charge up to $10 in fees for every $100 borrowed.

[…]

Payday loan borrowers stuck in 'revolving door of debt'

WASHINGTON — Four out of five people who take out a short-term payday loan either roll it over or take out another one within two weeks, pushing them into a cycle of debt, according to a report to be released Tuesday by the Consumer Financial Protection Bureau.

Nearly a quarter of borrowers — 22% — renewed the loan at least six times, causing them to end up paying more in fees than they originally borrowed, the bureau said in an analysis of 12 million loans made by storefront payday loan companies.

“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” said Richard Cordray, the bureau’s director. “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.”

The bureau, created by the Dodd-Frank financial reform law, has been overseeing payday lenders since 2012, the first such federal oversight.

The loans are cash advances on a paycheck, typically for two weeks with a flat 15% fee or an interest rate that doesn’t sound too high. But the costs can quickly multiply if the loan is not paid off or if the borrower needs to take out another to pay off the first one.


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Payday loans have been a fixture in working-class neighborhoods, and their use expanded during the Great Recession and its aftermath.

Some banks and credit unions also offer the loans, which they often call deposit advances. But some large institutions, such as Wells Fargo & Co. and U.S. Bancorp, stopped offering them this year after federal banking regulators said they would examine the products to make sure they were affordable for the borrower.

Payday lenders have said some consumers need access to short-term credit and value the loans as long as the terms are clear.

In December, the Community Financial Services Assn. of America, a trade group representing storefront lenders, touted a nationwide poll it commissioned by Harris Interactive that found that 91% of borrowers were satisfied with their payday loan experience.

But public interest groups have argued that payday loans take advantage of vulnerable borrowers, and the consumer bureau has made regulating storefront lenders a priority.

“For consumers in a pinch, getting the cash they need can seem worth it at any cost,” Cordray said in remarks prepared for a Tuesday hearing on payday loans in Nashville, Tenn.

“Many consumers would never dream of paying an annual percentage rate of 400% on a credit card or any other type of loan, but they might do it for a payday loan where it feels like they can get in and out of the loan very quickly,” he said.

The bureau’s report said it can be difficult for borrowers to pay off such loans, causing their costs to skyrocket.

Only 15% of borrowers are able to pay off the loan within 14 days without rolling it over or taking out another, the bureau said.

California and eight other states prohibit payday lenders from rolling over a loan, but allow them to make another loan to the same borrower the day the first one is repaid. Four states impose a waiting period of at least a day. The bureau considers a new loan taken out to pay off an old one to be, in effect, a renewal and part of the same “loan sequence.”

About 48% of initial payday loans are paid off with no more than one renewal or additional loan.

But 1 in 5 borrowers default on a payday loan at some point. And more than 80% of people who renewed or took out new loans ended up borrowing at least the same amount with each successive loan, pushing them into what Cordray called a “revolving door of debt.”

Almost half of payday loans are made to people as part of sequences of 10 or more loans. Given that figure, Cordray said, “one could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term.”

jim.puzzanghera@latimes.com

[…]