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Published: July 2009

Short-term payday loans force customers to quickly re-borrow

The Center for Responsible Lending (CRL) has issued a report on payday loans which finds that three quarters of loan volume in the industry is generated by borrowers who, after meeting the short-term due date of the loan, must re-borrow before their next pay period.

Download the report entitled "Phantom Demand: Short-term due date generates need for repeat payday loans, accounting for 76% of total volume"

View a 9-minute webinar about the report

Below is a summary of the report:

Repeat borrowing of what is marketed as a short-term loan of a few hundred dollars has long been documented, but this report verifies for the first time how quickly most payday lending customers must turn around and re-borrow after paying off their previous loan.

Among the over 80 percent of payday borrowers who conduct multiple transactions:

• Half of new loans at the borrower's first opportunity (immediately or after a 24-hour or more waiting period where required).
• 87% of new loans are opened within two weeks, or generally before their next payday.
• Only 6 percent of subsequent payday loans are taken out longer than a month after the previous loan was paid off.

This rapid re-borrowing indicates that most payday borrowers are not able to clear a monthly billing cycle without borrowing again.

Payday lenders generate loan volume by making a payday loan due in full on payday and charging a sizeable fee—now nearly $60 for an average $350 loan. This virtually guarantees that low-income customers will experience a shortfall before their next paycheck and need to come right back in the store to take a new loan. This churning accounts for 76 percent of total loan volume, and for $20 billion of the industry's $27 billion in annual loan originations.

For More Information

Center for Responsible Lending (CRL)

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Banking   ♦   Congress   ♦   Consumer Protection   ♦   Fraud/Scam   ♦