Financial Quicksand: Payday lending sinks borrowers in debt with $4.2 billion in predatory fees every year

Executive Summary: Financial Quicksand

New CRL study finds borrowers pay $4.2 billion every year in excessive payday lending fees

Every year, payday lenders strip $4.2 billion in excessive fees from Americans who think they're getting a two-week loan and end up trapped in debt. This report finds that across the nation payday borrowers are paying more in interest, at annual rates of 400 percent, than the amount of the loan they originally borrowed.

Despite attempts to reform payday lending, now an industry exceeding $28 billion a year, lenders still collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies.

Based on data collected by state regulators, financial records released by payday lenders, and assessments by third-party analysts, we update our 2003 quantification of the cost of predatory payday lending to American families. Breaking down the impact by state, we also calculate the savings to families in states that have banned payday lending.

In this report, we find that:

• Ninety percent (90%) of payday lending revenues are based on fees stripped from trapped borrowers, virtually unchanged from our 2003 findings. The typical payday borrower pays back $793 for a $325 loan.
• Predatory payday lending now costs American families $4.2 billion per year in excessive fees.
• States that ban payday lending save their citizens an estimated $1.4 billion in predatory payday lending fees every year.

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