by Hans Eisenbeis
- A new study by the Center for Responsible Lending finds that the payday loan industry is not nearly as good as advertised for unbanked and underbanked consumers (Consumerist.com 7.14.09).
- Payday loans are targeted at lower income consumers who have no other access to credit. They receive a loan in advance of a paycheck, and then usually get hit with a hefty interest rate on repayment — sometimes as high as 400% APR for a two-week loan (Consumers Union 11.99).
- The study finds that most payday loans are taken out to pay off previous payday loans, locking borrowers into a vicious cycle from which they can’t escape.
WHAT THIS MEANS TO BUSINESS
- The payday loan industry has argued that it provides a useful service for people with no access to credit. This study definitively refutes that, and supports legislative efforts in many states to limit predatory interest rates.
- Unbanked and underbanked consumers continue to be a good opportunity for financial services industries — for legitimate, pro-consumer brands.