A new study which was released Wednesday by the Consumer Financial Protection Bureau compared payday loans to a carousel, or, in the organization’s words, a “revolving door” of debt, as this short-term loan type continues to court controversy.
The CFPB did not divulge any exact plans going forward prior to releasing the results of the study, but it did hint that it plans to be more hands-on in trying to curtail the contentious practice of financial institutions offering payday loans to consumers. According to the CFPB, even if costs related to payday loans are passed off as fees, these costs do, in fact, compare to an annual percentage rate as high as 300 to 400 percent.
At the same time the CFPB tentatively presented the results of its study, speculation arose regarding a possible crackdown by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation on payday loans and other deposit-advance products being offered by banks.
“For too many consumers, payday and deposit advance loans are debt traps, and the stress of having to return every two weeks to re-borrow the same dollars after paying exorbitant fees and interest charges becomes a yoke on a consumer’s financial freedom,” postulated the CFPB’s Richard Cordray.
He observed patterns of “high sustained use”, regardless of whether the consumer rolls the loan over or pays the loan off, then turns around and takes on another payday loan or deposit-advance loan. The CFPB’s findings show that the median payday borrower took out a total of 10 loans in one year and paid a total of $458 worth in fees.
The figures were more dismaying for deposit-advance loans, where Cordray noted that “more than half (of the borrowers) took advances totaling $3,000 or more,” and among this group, over half of them had paid off one loan, only to return to take out another within just twelve days’ time.