Payday Lending Overview
Twenty or so years ago, some finance companies
figured out how to make loans of a few hundred dollars to people who were barely
getting by. That may sound generous, but when you look deeper, the practice they
developed amounts to nothing more than legal loan sharking.
The problem for the borrowers—and the payoff
for the lenders—is that the terms of these loans are cleverly designed to be
very difficult to meet. The borrower must keep coming back and renewing their
loan because they aren’t allowed to pay it down and can’t afford to pay it off.
They pay the lender another chunk of interest each time, about $50 for a $300
These loans carry annual interest rates of
400%, and the industry relies for 90 percent of their revenue on borrowers who
repeatedly renew or re-open their payday loans. The typical borrower ends up
paying about $500 in interest for a $300 loan, and still owes the principal.
Our country cannot afford to let nearly $5 billion
per year leak out of the pockets of working people. They need their hard-earned
cash, and we all need to help rebuild our economy.