Payday Loans — And How to Fix Them


This is Jennifer She took at 375 dollar payday loan to
cover some bills, but it ended up ruining her budget and
she’s not the only one. 12 million Americans use payday loans
every year. It’s not hard to see why people like
Jennifer are drawn to pay day loans. They look like two-week loans for a fixed fee of fifty-five dollars, but they’re not. Unlike other types of loans, payday loans
have to be paid back all at once which is hard to do if
you’re struggling to make ends meet. Instead, Jennifer pays a fee to buy more
time. The reality is that instead of two weeks typical borrowers carry loans for half the year and spend more in fees in the amount
they borrow. 8 in 10 borrowers want payday loan
reform and policymakers can put it in place. The
Consumer Financial Protection Bureau the new referee for payday lenders can
fix this problem. A strong ability to repay rule from the CFPB should allow borrowers to make smaller payments over more time. Today, these loans take about a third of the average borrowers pay check and that’s just too much. Research shows
most borrowers can afford to spend no more than five percent of their
paycheck on their loan payments. In Jennifer’s case she can still get
her 375 dollar loan and by limiting payments to five percent
of her income she would pay only sixty dollars and
each paycheck instead of having to repay four hundred thirty dollars all at once.
This will mean that loans have smaller more manageable payments that fit in a borrower’s budgets making
for a more affordable and predictable path out of debt. It’s also important for states to rein in
excessive interest rates. These changes, plus a few common-sense safeguards have already been tried with success. In Colorado, lawmakers cut prices by two-thirds and gave borrowers more time to pay their loans in smaller installments. Now the loans
work as advertised. Borrowers missed fewer payments and saved more than forty million dollars a year while some payday stores in Colorado
closed those that remain serve more customers.
Loans are still widely available and accessible, but work better. The point is, here’s a
solution: a better small loan market is possible with lower prices and more time to repay in affordable
installments. Policymakers at all levels need to act
now to help borrowers like Jennifer get back on solid financial ground to
learn more go to Pew trusts .org slash small loans

14 comments on “Payday Loans — And How to Fix Them”

  1. PayDay Bee says:

    Although I can see exactly why this happens, people shouldn't take out loans that they can't pay back. These people are warned all over the place, if they don't take that warning or cannot afford to repay their payday loan then unfortunately they will fall into this trap. I do totally agree that it would be a great thing if lenders allowed their customers to pay back smaller increments and be given more time.

    We operate a payday loans site ourselves, we are not a direct lender though. We put people in touch with lenders so that they can get a payday loan: http://paydaybee.com

  2. Julien Couvreur says:

    I see, price and terms control as a solution, as a means to helping people in need. Just like the minimum wage. This is quite ignorant economically and causes unintended consequences (even fewer options for borrowers).
    If you want to offer borrowers a better deal (more incremental installments, lower interest rates, longer loan terms), then find a way to offer a better deal. You will have great success, I'm sure. For instance, invest in loan companies that offer the best deal or start your own. 

    But the fact that you're not willing to put your money where you mouth is (and actually help people in need) should be telling. You don't think it would be profitable anymore (payday loans already has small profits already). Deep down, you know there is no free lunch.
    So instead, it is better to posture, regulate the industry so only the loans you approve are viable (short of banning payday loans), and other loans become impossible (too bad for borrowers who may miss those options), and get some signalling value out of it.

  3. Alex Truedman says:

    Jennifer should have thought about her budget in the first place when she was applying for a loan. Actually, considering all the terms and conditions, rates, APR, other figures are clearly stated in the agreement, all she had to do is add a loan to the expenses, which is huge, but that is how these credit works. Apparently, the expectations borrowers have regarding their financial options surpass the actual picture, but that doesn’t make loans the reason why borrowers can’t repay. Today all legit lender align with the best practices rules, and providers, like loansmob.com or other resources care to educate borrowers before any deal is closed. In fact, it would be unreasonable to lend to anyone who can’t realize the responsibility and evaluate personal financial scopes.

  4. Alex Neo says:

    http://emergency-cash.ml – Tthe site connect borrowers with lenders. Try this now if you want lower interest.

  5. FortNikitaBullion says:

    Actually you can already do this.  Just borrow $325 instead of the full $375 next time and pay off the $375 loan.  Repeat next week by borrowing $275.

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  7. Chris Baker says:

    If you dont save any money you will lose tons of money to interest.

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  11. Frank Ch. Eigler says:

    Price controls never work.

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  14. DozensOfViewers says:

    The payday lenders are not making huge margins on their invested capital. They have the expense of maintaining and staffing thousands of storefronts, plus they have to eat all the defaulted loans, and the default rate is very high with clientele living this close to the edge.

    They may charge 400% interest but in the end they’re only seeing 10-15% profit, which is not excessive.

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