The payday loan industry has been coming under increased scrutiny for allegedly preying on low-income borrowers and trapping them in a cycle of debt by charging exorbitant fees.
The loans enable consumers to quickly get their hands on a small sum of cash, which is typically around $375 for borrowers in the U.S., according to public-policy nonprofit Pew Charitable Trusts.
Supporters of the loans say they are a necessity for cash-strapped families that might need an extra couple hundred dollars every once in a while to help pay for groceries or electricity bills.
And it's easy to qualify for one: All you need to get a payday loan is a driver's license, a Social Security card, proof of income and a bank account number.
But the fees charged by the lenders are so high — up to 574% in some states — that many borrowers can't pay back the loans in time and instead end up taking out a second loan to pay the interest, entangling themselves in a damaging cycle of debt, according to a new report by 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 U.S., 12 million people borrow nearly $50 billion a year through payday loans.
The 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 mortgages and auto loans.
Most borrowers owe payday lenders for five months out of the year and typically end up paying $800 for a $300 loan.
The estimated annual percentage rate on payday loans in the U.S. ranges from a low of 196% in Minnesota to a high of 574% in both Mississippi and Wisconsin.
Borrowers with six or more loans each year make up more than half of all payday revenues in California, and they end up paying at least $525 for a $255 loan.
Payday loan stores tend to aggregate in areas with higher rates of poverty. The six counties in California with the highest number of payday lender stores per 100,000 people have an average per capita income of between $17,986 and $26,300, compared to the statewide average of $44,980. The average unemployment rate among those counties is nearly 15.8% compared to the state average of 11.8% and one in five people lives in poverty compared to 15% nationally.
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