7 Findings From the CFPB Report on Payday Loans
The Consumer Financial Protection Bureau (CFPB) has been busy. This time it’s focusing its efforts on transparency in the payday lending market. Payday loans are notorious for driving people to filing Las Vegas bankruptcy due to their sky-high interest rates. So when the CFPB studies them, it’s good to take note. Here are seven findings from the CFPB’s white paper on its initial findings (PDF):
- The CFPB sampled a number of institutions that generated payday loans, and it collected comprehensive data on individual debtors for a 12-month period at each institution sampled. The CFPB specifically tracked people who took out payday loans in the first month of the 12-month period to study their borrowing and repayment habits. The resulting dataset covers 15 million loans made in 33 states.
- The median amount borrowed per person was $250, which is likely due to limits imposed by state law. The amounts borrowed per person clustered around $300 and $500 as well. The mean amount borrowed was much higher at $392, indicating that a substantial number of borrowers were taking out more money than the median.
- The median loan fee per $100 borrowed was $15, but the mean was lower at $14.40. The median loan duration was 14 days, coinciding with a bi-monthly paycheck. However, the mean loan duration was higher at 18.3 days.
- The median two-week interest rate was 4.6 percent. At an annualized rate, the CFPB calculates it at 322 percent. The mean annual percentage rate was 339 percent.
- The median reported borrower income was $22,476 per year. This does not include income by other household members or income assistance from the government. Seventy-five percent of payday borrowers made less than $33,900 per year.
- Surprisingly, the CFPB found that multiple payday loan use was very common. Fourty-eight percent of borrowers took out more than 10 loans in a year, and only 13 percent took out one to two loans.
- The CFPB found that those who took out more than 7 payday loans in a year (two-thirds of the total) returned to the payday lender only 14 days later, which indicates that they were not using the loans for one-time emergencies but due to chronic cash shortages. The fees obviously piled up.
The CFPB will continue to study the risks associated with payday loans, and hopefully it will encourage Congress to limit some of the excessive borrowing by enforcing “cooling off” periods. Until then, if you’ve borrowed money from a payday lender and are finding it impossible to pay, talk to a Las Vegas bankruptcy lawyer to discuss your options.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.