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Research shows that the payday lending business model is designed to keep borrowers in debt, not provide one-time assistance during a time of financial need. According to a December 2003 CRL study of payday lending industry data, borrowers who receive five or more loans a year account for 91 percent of the lenders’ business. A 2003 study by the Center for Community Capitalism at UNC – Chapel Hill found that the financial success of payday lenders depends on their ability to convey occasional users to “chronic” borrowers who take out at least one loan per month.
Recognizing this pernicious problem, North Carolina ended it’s four-year experiment allowing payday lending in 2001. Fifteen states do not authorize payday lending and several other states are considering legislation to reform payday lending and several other states are considering legislation to reform payday lending. In spring 2004, Georgia enacted a strong law that outlaws predatory payday lending.
CRL conservatively estimates that predatory payday lending practices cost American families $3.4 billion annually.
Reprinted with kind permission of the Center for Responsible Lending, April 2004.
Source: Center for Responsible Lending
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