The payday loan industry is under increased scrutiny for allegedly attacking low-income borrowers and trapping them in a cycle of debt by charging exorbitant fees.
The loans allow consumers to quickly get their hands on a small amount of money, which is typically around $375 for borrowers in the United States, according to Pew Charitable Trusts, a public policy nonprofit.
Proponents of the loans say they are a necessity for cash-strapped families who might need an extra few hundred dollars once in a while to help pay for groceries or electricity bills.
And it’s easy to get: all you need to get a payday loan is a driver’s license, social security card, proof of income and bank account number.
But the fees charged by lenders are so high — up to 574% in some states — that many borrowers can’t repay loans on time and end up taking out a second loan to pay the interest, getting themselves into a mess. detrimental. debt cycle, according to a new report from the nonprofit think tank Milken Institute.
We’ve compiled some of the most shocking facts about the payday loan industry from the Milken Institute report below:
In the United States, 12 million people borrow nearly $50 billion a year through payday loans.
Rates charged on payday loans can be up to 35 times those charged on credit card loans and 80 times the rates charged on home loans and car loans.
Most borrowers owe payday lenders for five months out of the year and usually end up paying $800 for a $300 loan.
The estimated annual percentage rate on payday loans in the United States ranges from a low of 196% in Minnesota to a high of 574% in Mississippi and Wisconsin.
Borrowers with six or more loans each year account for more than half of all payday income in California, and they end up paying at least $525 for a $255 loan.
Payday loan shops tend to cluster in areas with the highest poverty rates. The six California counties with the most payday lender stores per 100,000 people have an average per capita income between $17,986 and $26,300, compared to a nationwide average of $44,980. ‘State. The average unemployment rate in these counties is nearly 15.8% compared to the state average of 11.8% and one in five people live in poverty, compared to 15% nationally.