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Durham, NC -- Unwary U.S. borrowers who rely upon high-interest payday lending for quick cash are caught in a "debt trap" that costs them $3.4 billion each year, according to a report by the Center for Responsible Lending (CRL).

Entitled "Quantifying the Economic Cost of Predatory Payday Lending," the new CRL study is the first to estimate the annual toll on American consumers of payday lending fees.

The payday lending industry (also known as "payday advance" or "cash advance") has experienced explosive growth in revenues, from $10 billion in 2000 to $25 billion in 2003. Payday loans are small, short-term cash advances, typically $300 for a term of two weeks. To get a loan, a borrower gives a payday lender a postdated personal check and receives cash, minus the lender's fees -- usually $45 for a $300 loan. Annual percentage rates average over 400%. Payday lending borrowers are typically low-income or minority families, and military personnel.

The industry claims that its product is intended to help people get past the occasional emergency. However, the report finds that "repeat" payday lending borrowers account for 91 percent of all payday loans (five or more payday loans per year).

"Our research confirms that the industry's growth is fueled by payday lenders catching families in a debt trap," said Eric Stein, senior vice president of CRL. "When a loan becomes due, most borrowers -– by definition, financially troubled from the beginning -- cannot afford to pay it back and still make it to the next payday. To avoid default, they do one of two things -- pay another $45 to keep the same loan outstanding until another payday, or pay the full $300 back, but immediately take out another payday loan to handle their living expenses."

"In either case, they are now stuck in a deadly cycle they cannot get out of -- paying repeated fees, hundreds or thousands of dollars, just to keep an existing loan outstanding that they cannot afford to pay off."

"CRL's estimate," Stein continued, "is conservative and reflects the experiences of the more than two of every three borrowers who incur five or more payday loans per year. The $3.4 billion cost associated with predatory payday lending does not account for the true costs to families," he said. "The CRL estimate does not consider additional costs related to insufficient fund (NSF) fees charged by payday lenders, bounced check fees charged by the borrowers' banks and increased societal costs due to collection efforts and payday lending-related bankruptcies."

A case in point: Anita Monti was looking for a short-term loan to buy Christmas presents for her grandchildren when she visited her first payday lender. A $345 two-week loan turned into a cycle of debt that cost her $1,780 for $700 cash received (from two payday lenders).

Julian Bond, chairman of the Board of the NAACP, said, "Visits to payday lending stores – which open their doors in low-income neighborhoods at a rate equal to Starbucks openings in affluent ones – are threatening the livelihoods of hard-working families and stripping equity from entire communities. The NAACP is dedicated to eliminating payday, because wealth-building and saving for the future are vital to the economic success of communities of color." Jean Ann Fox, director of consumer protection for the Consumer Federation of America, said "The goal of payday lenders is to enact a law in every state to authorize check holding for quick cash, triple digit interest rates disguised as affordable finance charge percentages, continuous loan flipping and the right to treat borrowers as bad check writers if they cannot repay on the next payday."

About the Methodology

CRL derived its estimate by analyzing data from several sources. Information from the North Carolina Commissioner of Banks and survey data revealed that 91 percent of payday loans are made to borrowers who, rather than facing the occasional emergency, took out five or more loans per year. The North Carolina data are the best for analyzing loan level activity, and the results are comparable to that found in other states. The authors multiplied the percentage of loans used by these repeat-use families times the annual volume of payday lending, $25 billion, times the average payday fee, which is 15%, to reach the $3.4 billion figure.

Contact: Stephanie Kendall for CRL at 703-276-3254 or