The Pew Charitable Trusts, a nonpartisan research and advocacy organization in Washington, D.C., has presented some important conclusions in a new study, "Payday Lending in America: Who Borrows, Where They Borrow and Why."
The key findings:
- Every year, some 12 million U.S. adults take out at least one payday loan.
- On average, each borrower takes out eight loans of $375 per year and pays $520 in interest expenses.
- Most borrowers use payday loans to finance ordinary living expenses, not unexpected emergencies.
- The average borrower is indebted for about five months of each year.
- The vast majority of borrowers say they would cut back expenses to cope with a cash shortfall if payday loans weren't available.
- Many borrowers also say they'd delay paying some bills, get help from friends or family or sell personal possessions if they couldn't obtain payday loans.
- Payday lending declines sharply in states that enact strong legal protections.
- Most borrowers in states that have strong protections don't seek out payday loans online or from other sources.
Alex Horowitz, research manager of the Pew Safe Small Dollar Loans Research Project, said during a press conference that the trend at the state level is toward more restrictions on payday lending.
A decade ago, many more states had payday loan storefronts. Today, some states ban these businesses. Others limit the number of payday loans per customer, cap payday loan costs or impose other restrictions, Horowitz said.
Project Director Nick Bourke said the study data included some bank deposit-advance loans, which "mimic" payday loans in the sense that they're also short-term, small-dollar transactions payable in a lump sum. These bank loans account for only a small proportion of total payday lending, however.
The study findings seem to refute industry claims that payday loans are used primarily for short-term financial emergencies. Instead, these loans appear to become a way of life for millions of people in states where storefront payday lenders operate.
"Lenders sell payday loans as a temporary bridge to the next payday," the study stated, "though in reality most borrowers are indebted for much longer than one pay cycle."
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