PayDay Loans and the CFPB

Payday LoansIn the Looking For Change post, I noted that many Americans are locked out of the traditional banking system, and as a result, turn to pawn shops and check cashing companies for the services that many of us take for granted. Worse yet, many use PayDay and title loans to meet basic financial needs. Of course the practice is quite costly. It has been calculated that $89 billion a year goes to fees and interest for using these types of alternative financial services.

According to the Pew Charitable Trusts’ Safe Small-Dollar Loans Research Project, an estimated 12 million Americans take out payday loans each year. On average, these borrowers take out eight loans per year, averaging $375 each. The fees over the course of a typical two-week loan? They averaged $15 per $100 borrowed, amounting to a 391% annual percentage rate.

There is no doubt that it is time for a change. Fortunately, the Consumer Finance Protection Bureau (CFPB) recently began to address this issue …

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

7 Comments

  1. If I got in a bad pinch, I would probably try to get a loan through a peer to peer lending system like Lending Club or something similar. Pay day loan would definitely be a last resort.
    I already treat credit cards as a last resort. Payday loans can bury you in fees quick but 18%+ APR on credit cards can bury you pretty easily too.

    • No doubt there are much better options out there. Too often, PayDay loans only compound the financial problems individuals were already experiencing. Thanks for stopping by and adding to the conversation, Kyle.

  2. I’m in the military so I have seen what payday loans can do to a person. Its a waste of money and can become addictive if you’re not careful. I hate payday loans and pawn shops.

    • I spent 21 years on active duty – retired 2005 – and like you, I have seen first hand how detrimental these types of loans can be. To someone considering one, I say avoid at all costs! Thanks for stopping by, Petrish and thanks for your service.

  3. Although I have gone long periods of living paycheck-to-paycheck, fortunately, I have never had to take out a PayDay loan. I have seen the documentary – Spent: Looking For Change – that SavvyJames mentions in the post and it was quite an eye opener for me.

  4. I’ve used a payday loan service previously and it was a nightmare. I understand this may become an absolute need for people to cover unexpected expenses, however I would caution anyone to exhaust all options before going this route.

    This doesn’t help the folks locked out of the banking system but it is worth noting that a few financial systems recognize this fleecing. I am a member of a credit union where they understand that bad things happen to good people. They offer a loan advance (maximum of $500 w/ history of direct deposit) and if you use the “cash advance” it automatically adds 25% into a savings account.

    • “I would caution anyone to exhaust all options before going this route …” Indeed. While I have never had to resort to a PayDay loan, I have been a in a position where I had to utilize the services of a pawn shop. Both are fraught with problems.

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