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6 Reasons We Need to Stop the Payday Debt Trap

By Mike Litt
Consumer Program Advocate

1. The payday debt trap ruins lives, harms families and hurts communities. 

"But the larger goal of helping families avoid a financial trap is in the best interest of local communities and the state. In the long run, family stability is good for business because financially healthy families support local businesses with their commerce. This cannot happen if a family's income goes to interest and fees on a predatory loan.” – The Editorial Board of the Arizona Republic on its conservative argument for federal payday regulations.

2. Setting people up to take out loan after loan when you know they can’t afford the first one is not fair. 

The national average APR for payday loans is 391%. And 75% of the payday industry’s fees come from people stuck in 10 or more loans a year.

This debt cycle was confirmed in enforcement actions, such as against Ace Cash Express, in which the CFPB uncovered in a training manual how employees were instructed to flip borrowers from one unaffordable loan to the next.

3. The payday debt trap is financially oppressive. Debt collection calls are abusive. 

In our recently released report, we found that 91% of all written payday complaints submitted to the CFPB showed signs of unaffordability, including abusive debt collection practices, bank account closures, long-term cycles of debt, and bank penalties like overdraft fees because of collection attempts.

“I never received paperwork and I have come to find that I am paying roughly XXXX per month as my payment and {$0.00} cents of that are going to principle. This can’t fit in a box called fair lending. This is financial prison! They won’t work with their customers and the harassment is relentless.” – Part of a written complaint submitted to the Consumer Financial Protection Bureau against CashCall from a consumer in California. The CFPB redacts information that could potentially be used to identify customers and replaces it with “XXXX.”

4. The payday industry makes billions of dollars at the expense of our families and communities.

The Insight Center for Community Economic Development finds that the payday lending industry had a negative impact of $774 million in 2011, resulting in the estimated loss of more than 14,000 jobs. U.S. households lost an additional $169 million as a result of an increase in Chapter 13 bankruptcies linked to payday lending usage, bringing the total loss to nearly $1 billion. The $774 million lost economic growth stems from the economic impact of payday loan interest payments totaling $3,309,926,773 in 2011.

5. Even though most Americans support stopping the payday debt trap, the industry is trying to buy off our elected officials and is threatening to sue the watchdog agency that is working on the first federal protections against payday loans. 

According to polling data from June 2016, 69% of Americans think there should be more government regulation of financial companies, such as Wall Street banks, mortgage lenders, payday lenders, debt collectors, and credit card companies, or less regulation of these companies. And 67% have an unfavorable view of payday lenders. 

Meanwhile, Dennis Shaul, CEO of the Community Financial Services Association of America said, “If it’s necessary after the public comment period, then indeed, we will sue.”

The payday industry reported over $15 million of political spending in the 2013-14 election cycle.

6. Making money by trapping people in debt is predatory and shameful. We shouldn’t stand for it.

“Why is it important to the church? Because it is wrong to treat people that way. It is wrong to go to people who are already in a bind. And design something to make the bind worse. “ - Steve Wells, Pastor, South Main Baptist Church in The Ordinance, a documentary about Texas churches and cities taking action to ban payday lending.

 

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