Payday Lending Overview
Payday Loans Scrutinized
With more Americans struggling financially, payday loans are coming under scrutiny for trapping the working poor in a vicious cycle of debt. Armen Keteyian reports. Aired on CBS Evening News July 29, 2008.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 loan. How the debt trap works
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.
