Payday and car-title loans are small‐dollar, high‐cost products that thrive on keeping consumers in a cycle of debt. 35 states still allow payday lending, while car-title lending is legal in 22 states. With lenders doing essentially no underwriting, consumers find it easy to obtain these loans, often marketed as a solution to financial emergency. However, the unaffordability of the loan and the lenders extreme leverage over the borrowers – either through direct access to the bank account or threatening repossession of the borrower’s car ‐ makes it very difficult to escape a cycle of debt that can last months, if not years.
Debt trap products often lead to other financial harms, including delinquency on other bills, overdraft and NSF bank charges, and involuntary loss of bank accounts. For car-title loans specifically, 1 in 5 consumers end up losing their vehicle through repossession, and car-title loans account for a drain of $3.8 billion.