CFPB Research Affirms Payday Debt Trap

New research from the Consumer Financial Protection Bureau affirms inherent defects in payday loans


Center for Responsible Lending
March 25, 2014

Washington, DC –New research released today by the Consumer Financial Protection Bureau (CFPB) on payday lending affirms what CRL has long found about the inherent defects of payday lending and shows that payday loans create a debt trap that makes borrowers worse off. Among the new findings: Nearly three-fifths of monthly borrowers in the CFPB study were recipients of government benefits, including Social Security—and these borrowers were more likely to be stuck in long-term debt.

“This research validates all we know about the payday debt trap,” said CRL President Mike Calhoun. “The cycle of repeat borrowing triggered by payday loans is not incidental, but integral, to the lenders’ business model.”

The new research is released on the same day that CFPB Director Richard Cordray hosts a field hearing on payday lending in Nashville, Tennessee. In his remarks, Director Cordray says, “… all too often those loans lead to a perpetuating sequence. That is where the consumer ends up being hurt rather than helped by this extremely high-cost loan product.”

In an op-ed published in the Tennessean this week, Calhoun also describes the multiple costs of payday lending for families and communities. “Payday borrowers are at high risk of losing their bank account, becoming delinquent on other debts and filing for bankruptcy,” Calhoun wrote. “When families are burdened by crushing debt and headed toward financial ruin, they can’t contribute to the local economy.”

CRL has long studied payday lending and published extensive research and policy papers revealing the predatory nature of the loans. In today’s CFPB hearing in Nashville, CRL legislative counsel Oneshia Herring will testify on the defective payday business model and on multiple actions taken by state and federal regulators to curb payday lending. She points out that not a single state has legalized payday lending since 2005, while several have curbed the harmful practice. The few banks that made payday loans have recently exited the business in the wake of new guidelines from federal banking regulators.

More information about payday lending can be found on CRL’s website.

The CFPB report is based on data from a 12-month period and over 12 million storefront payday loans. It is part of an existing report published a year ago about payday loans and similar products. During the field hearing, Director Cordray noted that the CFPB was in the “late stages” of considering a rule on payday ending.

For more information, contact Catherine An, catherine.an@responsiblelending.org, 202-349-1878

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.