Payday lenders deliver on their promises for quick cash, but those who take out the loans have trouble paying them off.
That's according to a survey by The Pew Charitable Trusts, which notes that the average loan of $400 needs to be repaid in two weeks, but the average borrower can pay only $50 in that time.
In a news release, Nick Bourke, Pew's expert on small-dollar loans, said the loans are marketed as a short-term financial stop gap, but that's not the reality for most customers.
"Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long term," said Bourke. "The loans initially provide relief, but they become a hardship."
According to Pew, Americans spend $7.4 billion each year on payday loans. Pew polled nearly 50,000 payday loan borrowers, from August 2011 to April 2012. Just 14 percent said they could repay their loan out of their monthly budgets, and 58 percent said they were dealing with cash-flow issues on a regular basis. The survey found that a majority of borrowers two out of three want more regulation of the industry, but would use a payday loan again.
Utah law prohibits extending payday loans to more than 10 weeks after the initial loan date.
Frank Pignanelli, a lobbyist and spokesman for the Utah Consumer Lending Association, which represents Utah's payday loan industry, declined to comment, referring questions to the Community Financial Services Association of America (CFSA).
"Pew's research in this area continues to lack vital context about the broader marketplace and the lack of available credit options," CFSA said in a prepared statement. "In our current economy and constricted credit market, it is critical that consumers have the credit options they need to deal with their financial challenges."
CFSA noted that 19 million Americans take out a payday loan each year.
Payday lending, borrower's rights in Utah
Lenders must post a fee schedule, so read the fine print on interest rates and charges.
Lenders can't extend a loan or accrue interest past 10 weeks from the initial date of the loan.
Lenders can't threaten borrower with criminal charges if payment check bounces.
To file a complaint, call 801-538-8830.
Source • Utah Department of Financial Institutions