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36% Cap Springs the Trap

Measures short of an interest rate cap fail to fix payday lending problem

The debt trap of payday lending persists even in states that have put restrictions on payday loans while exempting them from interest rate caps.

In "Springing the Debt Trap," CRL finds that high numbers of borrowers are still caught in payday loans for long periods of time, even in states that have passed certain measures intended to stop this cycle. No measure short of an interest rate cap has effectively addressed the repeat borrowing that advocates, policymakers, and the industry itself agree is the central problem with payday lending.


  • 90 percent of payday lending business is still generated by trapped borrowers with five or more loans, even in states that have attempted reform;
  • 60 percent of payday loans go to borrowers with 12 or more transactions per year;
  • 24 percent of loans go to borrowers with 21 or more transactions per year;
  • One of seven Colorado borrowers have been in payday debt every day of the past six months;
  • Nearly 90 percent of repeat payday loans are made shortly after a previous loan was paid off.

None of these measures have stopped payday loan flipping in the states:

  • Renewal bans/cooling-off periods;
  • Limits on number of loans outstanding at any one time;
  • Payment plans;
  • Loan amount caps based ona borrower's income;
  • Databases which enforce ineffective provisions;
  • Regulations that narrowly target payday loans.

Only enforcement of a comprehensive interest rate cap at or around 36 percent for small loans has solved the debt trap problem.

A dozen states with this cap, plus the District of Columbia, will realize a savings of $1.5 billion per year in abusive payday fees.



Statements from the December 13, 2007 news conference (audio) announcing the release of this study:

Uriah King, Policy Associate, Center for Responsible Lending
Delegate Harvey Morgan, Virginia House of Delegates

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