New research finds that in states without triple-digit payday loans, 90 million consumers save more than $2.2 billion each year that would have otherwise been paid to lenders. These costs savings also bring fewer long-term financial harms such as bankruptcy. The research shows that consumers in payday-free states have multiple ways to manage temporary cash shortfalls and at a fraction of the cost of payday loans.

As the Consumer Financial Protection Bureau receives public comments on how its proposed rule could close loopholes, the new research is particularly timely. A number of strong state laws will be at risk if the CFPB does not close significant loopholes in its final rule. In the draft rule, one provision would allow up to 6 payday loans a year without any underwriting.

Shark-Free Waters: States are Better Off without Payday Lending, a policy brief by the Center for Responsible Lending (CRL), analyzed academic studies, survey and focus group results in all 14 states and the District of Columbia where state laws prohibit excessive triple-digit interest on payday loans. Similarly in 2006 with bipartisan support, Congress enacted a 36 percent rate cap on these loans under the Military Lending Act. The Department of Defense supported enactment of the rate cap after determining that predatory payday lending negatively impacted military families and combat readiness of service members.

Further, and contrary to the claims of industry supporters, in states that prohibit these high-cost loans, consumers are satisfied. The analysis includes comments that document borrower experiences.

In North Carolina, 9 out of 10 low and moderate-income consumers expressed that payday lending was not in their best interest. "They’re there basically to rob people that need money," noted one North Carolina consumer.

According to another focus group participant from Arkansas, "I found that I really could do better without them [payday loans]...I have actually paid off debts by a little at a time."

People of color are especially impacted by the payday debt trap. Earlier studies have shown that in states allowing payday lending, such as Florida and California, African-American and Latino neighborhoods have twice the concentration of payday stores than their white counterparts.

The "shark-free" states that effectively enforce rate caps on payday loans are: Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. Among these states, 12 also impose interest rate limits for car-title loans, thereby further boosting consumer savings each year.

For example, in New York, the most populous state of the 14 with rate caps, consumers save a total of $789,995,328 in combined fees for payday and car title loans. Substantial savings were also found in Pennsylvania ($489,497,834), North Carolina ($457,729,960) and New Jersey ($346,587,204).

"These significant savings to consumers bring about greater financial stability and reflect that consumers who live in states with rate caps are spared the harms caused by high-cost, debt-trap loans," noted Robin Horwarth, a CRL Senior Researcher and co-author of the brief.

By contrast, where payday loans remain legal, borrowers pay fees of over $4.1 billion annually, with the average customer taking out 10 loans a year with a typical annual interest rate of 391 percent. The repeat borrowing cycle is a debt trap for consumers that is easy to access but extremely difficult to retire.

"Over the years, CRL’s payday research has focused on the ills of these predatory loans. This policy brief points out the benefits consumers gained by limiting interest rates – whether by voter referendum or state legislation. Money stayed in their pockets, instead of paying high-cost fees," concluded Delvin Davis, also a CRL Senior Researcher and co-author of the policy brief.

For more CRL information and resources on payday lending:

For more information or to schedule an interview, contact Charlene Crowell at or 919.313.8523